Michael Varley sold all of his GameStop shares after the company’s bold bid for eBay, saying the deal’s high leverage destroyed the investment case he had been building. “I have sold all my positions in GME,” Barry said in a post on Substack late Monday. “Whichever way you look at it, the instant Berkshire theory never fit debt/EBITDA above 5x and never fit interest coverage below 4.0x…As a result, GME GameStop made an unsolicited, non-binding offer to acquire eBay for $125 per share in cash and stock, valuing the online marketplace at approximately $55.5 billion. The offer is a significant premium to recent trading levels, but also raises questions about funding. GameStop’s market capitalization is just under $12 billion. GameStop’s stock price fell about 10% on Monday following the announcement, reflecting investor skepticism about the feasibility of the deal and the potential strain on the company’s balance sheet. GME 5D Mountain GameStop in the Past 5 Days Mr. Barry, of “The Big Short” fame, had believed that a deal could turn GameStop into a version of Berkshire Hathaway, but he decided that the company’s capital structure after the proposed takeover was incompatible with his “Instant Berkshire” theory. He said that idea would never match the level of debt needed to pursue an eBay acquisition. “Instant Berkshire never intended for leverage to be higher than 5x,” Barry wrote. “Never confuse debt with creativity.” Barry said a more realistic outcome at the proposed valuation would push leverage to about 7.7 times debt to earnings before interest, taxes, depreciation, and amortization, a near-distress level. He cited companies like Wayfair and Carvana as examples of companies struggling under similar debt burdens. “Wayfair lived there for years, Carvana almost died there, and from a beginning like that it can still die. So does Bath & Body Works. They are the survivors. They are the few,” he said. The offer to eBay was split evenly between cash and stock, and GameStop secured a $20 billion loan letter from TD Bank. Still, there is a wide gap between available funds and the implied purchase price, creating uncertainty about how the deal will work. GameStop CEO Ryan Cohen provided few details in a combative interview on CNBC on Monday, directing questions to the company’s public documents. He said the company has the flexibility to issue stock to close the deal, but stopped short of outlining a final financing plan.
