GameStop’s mysterious financing letters supporting its bold $56 billion bid for eBay have emerged as a central issue in the proposed deal, as questions grow about whether the deal can actually be financed.
The video game retailer said it plans to raise $20 billion in funding from TD Securities, part of TD Bank. But a key condition attached to the letter could ultimately make or break the deal: The combined company must maintain an investment-grade credit profile, CNBC’s David Faber reported, citing people familiar with the document.
Moody’s Ratings said Wednesday that the proposed takeover would be “credit negative” for eBay, citing the significant increase in leverage implied by the deal structure.
The rating agency estimates that the combined company’s leverage could approach nine times debt to earnings before interest, taxes, depreciation and amortization, not including cost-cutting synergies.
This level of debt would likely place the combined company below investment grade and could jeopardize the important terms attached to the TD financing package.
The proposed takeover immediately raised questions about how GameStop could finance a deal of that size. The video game retailer’s market value of about $11 billion is only a fraction of the deal’s implied value.
Chief Executive Officer Ryan Cohen provided limited clarity on the structure, other than to say the company has the ability to issue additional shares to complete the deal.
eBay acknowledged in a statement Monday that it had received the offer and said its board would consider it.
Semafor reported on Wednesday about the mysterious letter.
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