The Math Behind the Acquisition
Some form of this is out there all over the internet, but I've seen very little numbers-to-paper stuff on this sub, so here is the math for the GME-Ebay acquisition:
Purchase Price: $56B
Cash ($28B) comes from:
- $8B of cash that's currently on balance sheet (see bottom for an issue with this)*
- $20B in debt from TD
Equity ($28B) comes from:
- Using $23.17 per share (current price), Gamestop would need to issue 1.2B new shares. It currently has 448MM shares, so it will have approximately 1.65MM shares on the other side.**
Now, what would earnings look like? For the TTM, Gamestop had $232MM in operating earnings (interest income is being removed because the cash is being given up). Ebay had $2B in earnings. Putting these together, we get $2.3B in combined earnings before deducting ~$1.5B from interest on the TD loan.
Therefore, combined company earnings should be in the neighborhood of $800M, or $.48 per share, which is less than even current diluted EPS. Thus, this is not an accretive acquisition.
So, the acquisition results in less earnings per share despite also giving up $8B from the balance sheet. It's hard to see how people think shares in such a company will be worth more.
*More cash is actually needed than is laid out here because working capital hasn't been accounted for. So it's likely that more debt than $20B will be needed.
**In reality, issuing this many new shares likely substantially lowers the stock price, meaning even more shares are needed.
Edit: Special thanks to u/relentlessoldman for pointing out that I had initially said they would have 1.2B shares in total; in reality, this is 1.2B new shares, leaving 1.65MM total shares outstanding in the new company.