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OK, so on Sunday evening, the 
video game retailer GameStop 

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announced a $55.5 billion 
unsolicited bid to buy the 

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online auction site eBay. 
This is an ambitious move for 

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GameStop, primarily because 
GameStop itself only has a 

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market capitalization of around 
$12 billion O they're attemting 

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to buy a company that's roughly 
five times their size, which can

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happen, but it's not normally 
how acquisitions work. 

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Now some people have questioned 
the ambition of targeting eBay. 

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It is, after all, only five 
times GameStop size. 

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If you're going to announce a 
transformative, non binding 

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acquisition funded partly with 
shares that don't exist, why 

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things so small? 
NVIDIA has a market cap of 

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around 4 1/2 trillion dollars. 
GameStop could issue $5 trillion

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of stock and make a proper run 
at it. 

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There would even be genuine 
synergies. 

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GameStop stores already sell 
graphics cards to gamers. 

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You could describe it as a 
vertical integration play. 

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That's the kind of language that
gets sovereign wealth funds 

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excited. 
I'm not sure why Cohen left this

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on the table now. eBay was 
founded in 1995 and went public 

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in 1998. 
It was one of the original.com 

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stocks, and it might surprise 
you to know that even in 2005 it

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was a bigger company than 
Amazon. 

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When it went public. 
Almost all of the listings on 

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eBay were for Beanie Babies, 
which were themselves in a 

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bubble at the time. 
I think at one point a stuffed 

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purple bear was worth more than 
eBay servers. 

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So in a sense, eBay has always 
been a meme stock. 

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It just took 30 years for a meme
stock to try to buy it back. 

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Amazon started listing used 
goods on their marketplace and 

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was able to out compete eBay 
with their logistics network. 

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At the same time, a whole 
ecosystem of niche marketplaces 

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appeared. 
Vinted and Depop for second hand

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clothing stock X for sneakers. 
Reverb for musical instruments. 

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The Real Reel for luxury goods. 
And they all did the same thing.

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They took specific profitable 
categories away from eBay and 

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offered authentication so that 
buyers could trust that the 

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vintage Rolex they were 
purchasing was not, in fact, a 

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vintage Folex. 
EBay was left as a sort of 

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general purposes digital car 
boot sale where you could buy 

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anything but couldn't be 
entirely sure what you'd 

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receive. 
Over the last few years, eBay 

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has actually managed a fairly 
successful corporate turnaround 

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under their new CEO. 
They stopped trying to compete 

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directly with Amazon and went 
back to focusing on their 

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heritage selling used goods, 
auto parts, and collectibles. 

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Sales grew by 17% in the first 
quarter. 

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They have around 135 million 
active buyers and their stock is

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up over 130% since the start of 
2024. 

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So things are going reasonably 
well for eBay. 

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GameStop, on the other hand, is 
a famous meme stock. 

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It recently reported a 14% drop 
in quarterly revenue and is 

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currently in the process of 
closing nearly 500 of its retail

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locations across the United 
States. 

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Their core business is selling 
physical video game discs to 

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people who increasingly just 
download their games. 

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So naturally, the next logical 
step was a $56 billion hostile 

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takeover of a much larger, more 
profitable tech company. 

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Because that just makes sense. 
The CEO of GameStop is Ryan 

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Cohen. 
Now, meme stock companies making

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unusual capital allocation 
decisions is not new. 

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A couple of years ago, the CEO 
of AMC, the movie theater chain,

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spent $28 million of actual cash
to buy a 22% stake in a Nevada 

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gold mine. 
The gold in the mine is what 

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geologists call refractory, 
meaning it is chemically trapped

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inside sulfide minerals and is 
very difficult to extract. 

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So a cinema chain spent real 
money on largely inaccessible 

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gold. 
But I suppose if you think about

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it, gold is really just a 4000 
year old meme too, so at least 

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it was on brand. 
Cohen has been taking a similar 

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approach. 
In 2025, dozens of companies 

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started imitating 
Microstrategy's corporate 

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treasury strategy of issuing 
shares and debt to buy Bitcoin. 

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It was a trend. 
The idea is that if you put 

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Bitcoin on your balance sheet, 
your stock goes up because 

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crypto people get excited and 
then you issue more stock to buy

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more Bitcoin and so on. 
It was supposed to be a 

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perpetual motion machine, which 
it is, until it isn't. 

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Last year, GameStop spent half a
billion dollars buying Bitcoin 

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in an attempt to join this 
trend. 

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The market responded to this 
bold financial innovation by 

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immediately dropping GameStop 
stock price by 11%. 

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It turns out that when you layer
a meme stock on top of a crypto 

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treasury strategy, the two memes
might cancel each other out 

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rather than reinforcing one 
another. 

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Who could have predicted that? 
This is not the first time that 

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Cohen has attracted attention 
for the way he moves in and out 

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of struggling companies. 
In 2022, he built a large stake 

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in Bed Bath and Beyond, filing 
disclosures that drew 

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significant attention from 
retail investors on Reddit, many

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of whom bought shares on the 
basis of his involvement. 

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Cohen then sold his entire 
position near the peak in August

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2022. 
The stock subsequently 

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collapsed. 
The SEC opened an investigation.

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A class action lawsuit was filed
alleging that his disclosures 

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and social media activity 
amounted to a pump and dump 

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scheme, allegations that Cohen 
denied. 

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He was not charged by the SEC. 
The class action survived a 

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motion to dismiss, though a 
separate short swing profits 

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claim was later dismissed as 
mood after Bed Bath and Beyond 

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filed for bankruptcy. 
Now, none of that means anything

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improper occurred. 
It's entirely possible that 

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Cohen simply changed his mind 
about the investment. 

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People are allowed to change 
their minds, and ebay's board 

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will no doubt have reviewed all 
of this publicly available 

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information before deciding how 
to respond to his offer. 

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I'm sure it'll all be fine. 
Undeterred by the fact that his 

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company's worth a fraction of 
the company he's trying to buy, 

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Cohen went on CNBC on Monday 
morning to explain the deal to 

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Andrew Ross Sorkin. 
He appeared via webcam wearing a

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black leather jacket in the 
style of NVIDIA CEO Jensen Huang

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or even Elon Musk against a 
blurred background. 

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I think the idea was to channel 
the energy of a visionary tech 

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CEO, but the overall effect was 
less. 

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I'm reshaping the future of 
computing and more. 

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I'm about to ask you to invest 
in an unregistered crypto token.

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It was giving Timu Elon Musk, 
which to be fair is probably the

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most on brand aesthetic choice a
meme stock CEO has ever made. 

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GameStop is the future of 
e-commerce. 

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The details are on our website. 
I don't understand what's 

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confusing about that. 
So that is essentially how the 

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interview went. 
Now, Andrew Ross Sorkin has 

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essentially become the patron 
St. of enduring unhinged 

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billionaire interviews. 
He's the guy that Elon Musk kept

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calling Jonathan at the Deal 
Book Summit right before telling

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advertisers to GFY a few years 
ago. 

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It's a hard job, and Jonathan 
has to do it, but even he seemed

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to struggle with this one. 
The core problem was simple. 

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Sorkin kept asking Cohen how 
GameStop plan to pay for a 

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company that cost $56 billion 
when GameStop is worth $12 

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billion. 
Cohen kept saying it's half 

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cash, half stock, and the 
details are on our website. 

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Sorkin pointed out that the math
didn't add up. 

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Well, I think we can start with 
the idea that the, the market 

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cap of, of GameStop is call it 
$11 billion. 

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You have $9 billion on your 
balance sheet. 

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Arguably, if you're, if you're 
providing effectively all of 

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your stock and then, and then 
the cash that gets you to 20, 

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you have this letter from TD, 
that's another 20. 

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We're now at 40, but we're still
off by call it 16. 

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And and the 20 as far as I 
understand, while it's 

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considered a highly confident 
letter, meaning CD saying 

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they're highly confident that 
they would provide the 

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financing, it's not locked 
financing. 

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Yeah, we'll see what happens. 
I hear you. 

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Becky Quick tried the same 
question and Cohen said I don't 

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understand your question again, 
Quick said. 

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But you're on our air, and Cohen
said. 

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So, but I don't understand your 
question. 

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It was like watching a man try 
to exit a conversation by 

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walking into the same locked 
door over and over again. 

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It's worth noting that the 
interview was not universally 

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received as a disaster on 
Reddit. 

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Super stonk, the spiritual home 
of GameStop retail shareholders.

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The reaction was overwhelmingly 
positive. 

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Comments describe Cohen as 
savage, a bad ass, and more 

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succinctly as having put 
Sorkin's anatomy in Sorkin's 

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mouth. 
The general theory was that 

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Cohen was deliberately giving 
Cnbca bad interview as 

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punishment for their years of 
negative coverage of GameStop, 

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and that the real, genuine 
interview would be given to 

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friendlier outlets. 
Specifically, a later appearance

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on Fox Business with Charles 
Payne, which by all accounts was

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considerably warmer. 
Now, this makes a certain kind 

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of sense if your goal is to 
manage the mood of a loyal 

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retail shareholder base who will
not sell no matter what. 

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It makes less sense if your goal
is to convince the institutional

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investors who own the majority 
of eBay shares that you're 

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capable of running a $56 billion
leverage buy out. eBay 

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shareholders are not on Reddit. 
They're fund managers who'll 

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need to vote on this deal, and 
they will want to understand the

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financing before they do. 
Repeating it's on our website to

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Betty Quick three times is not 
the kind of capital allocation 

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communication that typically 
moves institutional 

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shareholders. 
So let's do what Cohen wouldn't 

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and look at the math. 
The crude version is this, $9.4 

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billion of cash shown and 
Gamestop's balance sheet, a $20 

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00:11:32,800 --> 00:11:37,240
billion loan which he may or may
not be able to get from TD Bank,

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00:11:37,400 --> 00:11:41,480
and $28 billion in newly issued 
GameStop stock. 

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00:11:42,120 --> 00:11:46,440
Half cash, half stock. 
On paper, it adds up. 

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The reason Cohen didn't want to 
explain this on television is 

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that each component is worse 
than it sounds. 

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The cash portion. 
GameStop says it has 9.4 billion

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in cash and liquid assets, 
according to Robin Wigglesworth 

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at the FT. 
That breaks down into 6.3 

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00:12:05,320 --> 00:12:10,320
billion in actual cash, 2.7 
billion in unexplained liquid 

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00:12:10,320 --> 00:12:14,800
investments, whatever that means
at a company like GameStop, and 

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00:12:15,000 --> 00:12:21,640
roughly $368,000,000 in Bitcoin.
So the cash is mostly cash. 

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00:12:21,880 --> 00:12:26,440
Fine, the debt portion. 
TD Bank has provided what is 

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00:12:26,440 --> 00:12:30,760
called a highly confident letter
saying that they're highly 

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00:12:30,760 --> 00:12:33,920
confident that they could 
arrange $20 billion of 

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00:12:33,920 --> 00:12:36,960
financing. 
Now, as FT Alpha Bill pointed 

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00:12:36,960 --> 00:12:41,200
out, a highly confident letter 
is not a binding commitment. 

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00:12:41,400 --> 00:12:45,040
It is essentially a bank saying 
we think we could probably do 

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00:12:45,040 --> 00:12:48,720
this if we tried, which is the 
kind of assurance that has 

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00:12:48,720 --> 00:12:52,680
historically done a lot of heavy
lifting in transactions of this 

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00:12:52,680 --> 00:12:55,800
nature. 
The only reason these letters 

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00:12:55,840 --> 00:13:00,440
ever meant anything was because 
in the 1980s Drexel Burnham 

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00:13:00,440 --> 00:13:04,440
Lamberts letters were backed by 
the credibility of Mike Milken 

200
00:13:04,440 --> 00:13:07,520
and the entire junk bond market 
he had created. 

201
00:13:08,080 --> 00:13:12,680
TD Securities is a fine Canadian
investment bank, but it's not 

202
00:13:12,680 --> 00:13:18,120
Drexel Burnham Lambert in 1986. 
Also, and this is important, 

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00:13:18,360 --> 00:13:22,800
GameStop itself cannot support 
$20 billion of debt. 

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00:13:23,400 --> 00:13:29,360
It's estimated EBITDA is around 
$469,000,000 and it already has 

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00:13:29,440 --> 00:13:33,640
four billion of existing debt. 
This is not GameStop borrowing 

206
00:13:33,640 --> 00:13:37,720
money, this is a leveraged 
buyout for the debt would be 

207
00:13:37,720 --> 00:13:40,560
secured against ebay's cash 
flows. 

208
00:13:40,880 --> 00:13:44,920
GameStop is essentially 
proposing to use ebay's own 

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00:13:44,920 --> 00:13:47,640
balance sheet to finance its 
acquisition. 

210
00:13:48,200 --> 00:13:50,160
And then there's the stock 
portion. 

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00:13:50,400 --> 00:13:53,760
This is the part that Cohen 
really didn't want to discuss, 

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00:13:53,960 --> 00:13:57,760
and it's easy to see why. 
GameStop stock is trading at 

213
00:13:57,760 --> 00:14:03,080
around $24.00 a share. 
To deliver $28 billion of stock,

214
00:14:03,280 --> 00:14:07,560
they would need to issue more 
than a billion new shares, and 

215
00:14:07,680 --> 00:14:09,440
there's a small problem with 
that. 

216
00:14:09,680 --> 00:14:13,840
Gamestop's corporate charter 
only authorizes 1 billion shares

217
00:14:13,840 --> 00:14:18,880
in total, and 448 million shares
are already outstanding. 

218
00:14:19,200 --> 00:14:23,360
So they're proposing to pay for 
half of this acquisition, which 

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00:14:23,360 --> 00:14:27,000
shares that do not currently 
exist and they're not currently 

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00:14:27,000 --> 00:14:31,000
authorized to create. 
This is a fixable problem. 

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00:14:31,160 --> 00:14:35,280
Shareholders could vote to 
authorize more shares, but this 

222
00:14:35,280 --> 00:14:38,520
is the kind of thing that you 
might want to have looked into 

223
00:14:38,520 --> 00:14:43,040
before announcing a $56 billion 
takeover on a Monday morning. 

224
00:14:43,320 --> 00:14:46,840
But perhaps that level of detail
was on the website. 

225
00:14:47,360 --> 00:14:50,800
Now, that authorization issue 
aside, here's where it gets 

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00:14:50,800 --> 00:14:53,440
interesting. 
As Matt Levine pointed out in 

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00:14:53,440 --> 00:14:57,000
his Money Stuff column, if you 
issue a billion new shares to 

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00:14:57,000 --> 00:15:01,800
buy eBay, legacy eBay 
shareholders would end up owning

229
00:15:01,840 --> 00:15:05,280
roughly twice as much of the 
combined company as legacy 

230
00:15:05,280 --> 00:15:10,440
GameStop shareholders would. 
GameStop has 448 million shares 

231
00:15:10,440 --> 00:15:13,680
outstanding. 
After issuing another billion or

232
00:15:13,680 --> 00:15:17,640
so, the former eBay holders 
would own the majority already 

233
00:15:17,640 --> 00:15:21,440
of the combined entity. 
So this is not really GameStop 

234
00:15:21,440 --> 00:15:25,240
buying eBay. 
It's closer to eBay accidentally

235
00:15:25,240 --> 00:15:29,520
acquiring GameStop, with Ryan 
Cohen volunteering to be the CEO

236
00:15:29,720 --> 00:15:33,840
of the new company, which is 
possibly why he preferred to say

237
00:15:34,080 --> 00:15:38,360
it's on our website rather than 
explain this on live television.

238
00:15:39,080 --> 00:15:42,240
Now, it's worth being clear 
about who benefits from this 

239
00:15:42,240 --> 00:15:45,800
structure. 
Cohen recently struck a new pay 

240
00:15:45,800 --> 00:15:50,720
deal and his options payout if 
Gamestop's market capitalization

241
00:15:50,720 --> 00:15:55,360
hits $100 billion. 
To get from 12 billion to 100 

242
00:15:55,360 --> 00:15:58,240
billion, he needs the number to 
go up. 

243
00:15:58,520 --> 00:16:02,400
He does not necessarily need the
value per share to go up. 

244
00:16:02,640 --> 00:16:06,400
If you issue a billion new 
shares and the market cap grows 

245
00:16:06,400 --> 00:16:09,200
accordingly, Cohen hits his 
target. 

246
00:16:09,520 --> 00:16:13,440
The shareholders who own 
GameStop today end up with a 

247
00:16:13,440 --> 00:16:16,200
much smaller slice of a larger 
pie. 

248
00:16:16,480 --> 00:16:20,000
Whether that slice is worth more
or less than what they started 

249
00:16:20,000 --> 00:16:24,440
with depends entirely on whether
Ryan Cohen is a better manager 

250
00:16:24,440 --> 00:16:28,520
of eBay than ebay's current 
management, which is, at this 

251
00:16:28,520 --> 00:16:33,280
point, an untested hypothesis. 
This also, incidentally, 

252
00:16:33,280 --> 00:16:36,680
explains why the interview kept 
circling back to Cohen's 

253
00:16:36,680 --> 00:16:40,320
compensation package. 
In January, Gamestop's board 

254
00:16:40,320 --> 00:16:44,480
granted Cohen a Performance 
Based Stock option award that 

255
00:16:44,480 --> 00:16:49,040
would pay out up to $35 billion 
if GameStop hits a market 

256
00:16:49,040 --> 00:16:54,280
capitalization of $100 billion 
and $10 billion in cumulative 

257
00:16:54,280 --> 00:16:58,640
EBITDA within 10 years. 
GameStop is currently worth 

258
00:16:58,640 --> 00:17:02,280
around 12 billion. 
Getting from 12 to 100 billion 

259
00:17:02,280 --> 00:17:07,079
organically is difficult. 
Getting from 12 to 60 billion by

260
00:17:07,079 --> 00:17:12,240
bolting on a $46 billion company
and then growing 10% a year for 

261
00:17:12,240 --> 00:17:15,280
a decade is considerably less 
difficult. 

262
00:17:15,839 --> 00:17:19,119
As Matt Levine notes, in the 
corporate governance literature,

263
00:17:19,319 --> 00:17:23,359
this sort of thing CE OS 
pursuing size rather than return

264
00:17:23,359 --> 00:17:27,400
on investment is called empire 
building, and it's generally 

265
00:17:27,400 --> 00:17:31,640
considered a bad thing. 
On CNBC, Cohen said his 

266
00:17:31,640 --> 00:17:35,320
compensation package was 
designed to align his interest 

267
00:17:35,320 --> 00:17:38,880
with shareholders. 
Becky Quick noted that it might 

268
00:17:38,880 --> 00:17:42,720
instead be designed to align his
interests with a very large 

269
00:17:42,720 --> 00:17:45,200
number. 
Cohen said that he didn't 

270
00:17:45,200 --> 00:17:50,480
understand the question, but 
anyhow, So what is the actual 

271
00:17:50,480 --> 00:17:52,720
strategy to force this deal 
through? 

272
00:17:53,080 --> 00:17:56,480
Well, in his letter, Cohen 
pointed out that GameStop had 

273
00:17:56,480 --> 00:18:01,280
built a 5% stake in eBay, making
them one of ebay's largest 

274
00:18:01,280 --> 00:18:04,880
shareholders, which he says 
forces the board to take his 

275
00:18:04,880 --> 00:18:08,160
proposal seriously. 
But when the FT looked at 

276
00:18:08,160 --> 00:18:12,440
Gamestop's 13D regulatory 
filing, they found a slight 

277
00:18:12,440 --> 00:18:15,360
discrepancy. 
GameStop had only purchased 

278
00:18:15,360 --> 00:18:20,840
25,000 actual shares of eBay. 
The rest of their 5% economic 

279
00:18:20,840 --> 00:18:24,640
exposure was a series of 
American style put and call 

280
00:18:24,640 --> 00:18:27,800
options. 
Now a corporate board has a 

281
00:18:27,800 --> 00:18:30,920
fiduciary duty to it's actual 
shareholders. 

282
00:18:31,200 --> 00:18:34,520
They do not have a fiduciary 
duty to people who bought 

283
00:18:34,520 --> 00:18:37,480
derivatives betting on the 
direction of the stock price. 

284
00:18:37,680 --> 00:18:42,360
Those are not the same thing. 
Cohen also told the Wall Street 

285
00:18:42,360 --> 00:18:46,000
Journal that if the eBay board 
isn't receptive to his 

286
00:18:46,000 --> 00:18:50,400
unsolicited offer, he's prepared
to run a proxy fight and take 

287
00:18:50,400 --> 00:18:52,760
the offer directly to 
shareholders. 

288
00:18:52,960 --> 00:18:57,560
Which sounds very aggressive and
hostile until you read ebay's 

289
00:18:57,560 --> 00:19:02,160
proxy materials and realize that
the deadline for shareholders to

290
00:19:02,160 --> 00:19:05,920
nominate director candidates for
the upcoming annual meeting has 

291
00:19:05,920 --> 00:19:09,600
already closed. 
It's generally considered poor 

292
00:19:09,600 --> 00:19:14,240
corporate strategy to threaten a
hostile board takeover a few 

293
00:19:14,240 --> 00:19:18,320
weeks after the deadline has 
passed, but maybe the workaround

294
00:19:18,320 --> 00:19:21,800
is on their website. 
So let's set all of that aside 

295
00:19:21,800 --> 00:19:24,400
for a moment and ask the more 
basic question. 

296
00:19:24,680 --> 00:19:28,840
What's the actual business logic
of combining A shrinking video 

297
00:19:28,840 --> 00:19:31,840
game retailer with an online 
auction house? 

298
00:19:32,320 --> 00:19:38,000
Well, Cohen says that Gamestop's
1600 physical US locations will 

299
00:19:38,000 --> 00:19:42,720
give eBay a national network for
authentication, intake, 

300
00:19:42,720 --> 00:19:47,200
fulfilment, and live commerce. 
The idea is that instead of 

301
00:19:47,200 --> 00:19:50,760
mailing a vintage Rolex or a 
rare Pokémon card to a 

302
00:19:50,760 --> 00:19:55,320
centralized eBay authentication 
hub, you could just walk it into

303
00:19:55,320 --> 00:19:59,080
your local GameStop. 
This is actually not a terrible 

304
00:19:59,080 --> 00:20:02,000
idea. 
The only slight issue is that 

305
00:20:02,000 --> 00:20:06,000
GameStop is currently in the 
process of closing nearly 500 of

306
00:20:06,000 --> 00:20:09,640
those exact locations. 
It's a bit difficult to serve as

307
00:20:09,640 --> 00:20:13,520
a national logistics and 
authentication network for a $50

308
00:20:13,520 --> 00:20:17,200
billion tech company when your 
windows are boarded up and your 

309
00:20:17,200 --> 00:20:21,400
lease has been terminated. 
I'm also not entirely convinced 

310
00:20:21,600 --> 00:20:24,800
that the teenagers working at 
GameStop are qualified to 

311
00:20:24,800 --> 00:20:28,560
authenticate luxury goods, 
though to be fair, they probably

312
00:20:28,560 --> 00:20:32,960
know their way around a Pokémon 
card, and a vintage Rolex is 

313
00:20:32,960 --> 00:20:36,680
really just a Pokémon card for 
people who wear suits, so 

314
00:20:36,840 --> 00:20:40,920
perhaps there's something there.
The other part of the strategy, 

315
00:20:41,040 --> 00:20:45,080
the cost cutting, is just 
killing ebay's marketing budget.

316
00:20:45,400 --> 00:20:49,960
Cohen proposes $2 billion in 
annual savings, most of which 

317
00:20:49,960 --> 00:20:54,840
comes from slashing 1.2 billion 
from sales and marketing and 500

318
00:20:54,840 --> 00:20:57,760
million from general and 
administrative costs. 

319
00:20:58,160 --> 00:21:02,000
As FT Alphaville noted, this is 
the kind of thing a first year 

320
00:21:02,000 --> 00:21:04,320
private equity associate would 
propose. 

321
00:21:04,560 --> 00:21:08,200
Cut the marketing budget, fire 
the admin staff, make the 

322
00:21:08,200 --> 00:21:12,040
numbers look better. 
It might even work for 1/4 or 

323
00:21:12,040 --> 00:21:14,080
two. 
The first year associates would 

324
00:21:14,080 --> 00:21:17,400
then leave for a better job and 
someone else would deal with the

325
00:21:17,400 --> 00:21:20,880
consequences. 
Cohen, to his credit, has not 

326
00:21:20,880 --> 00:21:25,640
indicated any plans to leave. 
When you put it all together, a 

327
00:21:25,640 --> 00:21:30,560
$56 billion bid funded with 
shares that don't exist, a proxy

328
00:21:30,560 --> 00:21:34,360
fight that missed the deadline, 
and a retail strategy reliant on

329
00:21:34,360 --> 00:21:37,760
stores that are closing and a 
cost cutting plan that amounts 

330
00:21:37,760 --> 00:21:41,120
to slashing the marketing budget
of a company that you're trying 

331
00:21:41,120 --> 00:21:45,760
to grow, you start to understand
why Michael Bury sold his entire

332
00:21:45,760 --> 00:21:50,280
GameStop stake this week. 
Sometimes the smartest trade is 

333
00:21:50,280 --> 00:21:53,280
just leaving. 
Now, it's worth looking a bit 

334
00:21:53,280 --> 00:21:56,240
closer at Michael Berry's 
decision to sell his stake, 

335
00:21:56,440 --> 00:22:00,120
because his relationship with 
GameStop goes back quite a long 

336
00:22:00,120 --> 00:22:02,640
way. 
For those who aren't familiar 

337
00:22:02,640 --> 00:22:05,760
with him, Michael Bury is a 
hedge fund manager who's 

338
00:22:05,760 --> 00:22:09,280
probably best known for 
successfully betting against the

339
00:22:09,400 --> 00:22:13,720
US housing market before the 
2008 financial crisis and for 

340
00:22:13,720 --> 00:22:17,200
being played by Christian Bale 
in the film The Big Short. 

341
00:22:17,520 --> 00:22:21,520
But he's also one of the people 
who inadvertently helped start 

342
00:22:21,520 --> 00:22:26,320
the GameStop frenzy. 
Back in 2019, long before Ryan 

343
00:22:26,320 --> 00:22:30,440
Cohen arrived, Burry took a 
large stake in GameStop and 

344
00:22:30,440 --> 00:22:34,080
began writing letters to the 
board urging them to buy back 

345
00:22:34,080 --> 00:22:36,960
stock. 
Those filings drew attention 

346
00:22:36,960 --> 00:22:40,600
from retail investors on Reddit.
And while it was Keith Gill, 

347
00:22:40,600 --> 00:22:44,080
known as Roar and Kitty, who 
actually lit the fuse on the 

348
00:22:44,080 --> 00:22:48,320
2021 short Squeeze, Burry was 
the one who left the matches 

349
00:22:48,320 --> 00:22:51,760
lying around. 
He then came back a few years 

350
00:22:51,760 --> 00:22:56,000
later, saw the fire, and decided
to warm his hands on it for a 

351
00:22:56,000 --> 00:22:58,480
while. 
He's now left the building 

352
00:22:58,480 --> 00:23:02,880
entirely, which is probably the 
right call when I say he came 

353
00:23:02,880 --> 00:23:06,800
back to warm his hands. 
More recently, Bury had bought 

354
00:23:06,800 --> 00:23:10,280
back into GameStop. 
His thesis was what he called 

355
00:23:10,320 --> 00:23:14,480
Instant Berkshire, the idea that
GameStop, sitting on a massive 

356
00:23:14,480 --> 00:23:18,240
cash pile with a declining 
retail business, could simply 

357
00:23:18,240 --> 00:23:22,040
stop pretending to be a video 
game store and instead become a 

358
00:23:22,040 --> 00:23:25,360
holding company making 
disciplined acquisitions with 

359
00:23:25,360 --> 00:23:29,320
cash, much like Warren Buffett 
did with a failing textile mill 

360
00:23:29,320 --> 00:23:32,720
called Berkshire Hathaway back 
in the 19 60s. 

361
00:23:33,120 --> 00:23:37,040
It's a nice theory, but Cohen is
no Warren Buffett. 

362
00:23:37,280 --> 00:23:41,440
Half of Gamestop's offers in 
shares of a volatile meme stock.

363
00:23:41,720 --> 00:23:45,440
Buffett famously and 
consistently signals that his 

364
00:23:45,440 --> 00:23:48,760
shares are strongly undervalued 
and therefore prefers to make 

365
00:23:48,760 --> 00:23:52,120
only cash bids, which are also 
easier to value. 

366
00:23:52,680 --> 00:23:55,880
Buffett doesn't usually wade in 
telling the world how much 

367
00:23:55,880 --> 00:23:59,280
better he would be at running 
things than the incumbent CEO. 

368
00:23:59,560 --> 00:24:03,280
Instead, he aims to select 
managers he believes in and lets

369
00:24:03,280 --> 00:24:05,560
them get on with running their 
businesses. 

370
00:24:06,160 --> 00:24:09,400
Warren Buffett has also never 
tried to pump the value of 

371
00:24:09,400 --> 00:24:12,000
Berkshire Hathaway by buying 
Bitcoin. 

372
00:24:12,600 --> 00:24:16,760
The GameStop offer is trying to 
buy a company 8 times it's own 

373
00:24:16,760 --> 00:24:22,400
size, $12 billion market cap 
plus $4 billion in debt -9 

374
00:24:22,400 --> 00:24:27,720
billion in cash against a $56 
billion offer which works out at

375
00:24:27,720 --> 00:24:30,360
roughly 8 times it's enterprise 
value. 

376
00:24:30,520 --> 00:24:34,040
Now it's not unheard of for a 
smaller company to acquire a 

377
00:24:34,040 --> 00:24:38,360
larger. 1-2 years ago, David 
Ellison, Skydance Media, a 

378
00:24:38,360 --> 00:24:42,120
company a fraction of the size 
of Paramount, managed to 

379
00:24:42,120 --> 00:24:44,560
complete, need exactly that kind
of deal. 

380
00:24:44,800 --> 00:24:49,280
The key difference is that David
Ellison had his father, Larry 

381
00:24:49,280 --> 00:24:52,760
Ellison, one of the world's 
wealthiest people, putting $6 

382
00:24:52,760 --> 00:24:55,680
billion of real money into the 
transaction. 

383
00:24:56,040 --> 00:25:00,040
David Ellison also spent the 
better part of a year finding 

384
00:25:00,040 --> 00:25:03,440
additional Middle Eastern 
investors to close the financing

385
00:25:03,440 --> 00:25:06,160
gap. 
The deal was binding, the money 

386
00:25:06,160 --> 00:25:10,920
existed, and it closed. 
Cohen's offer is non binding. 

387
00:25:11,080 --> 00:25:15,120
The financing is described as 
highly confident and the shares 

388
00:25:15,120 --> 00:25:18,560
required to complete it have not
yet been authorized by 

389
00:25:18,560 --> 00:25:21,760
shareholders. 
These are slightly different 

390
00:25:21,760 --> 00:25:25,600
situations. 
On Monday, Bury announced on his

391
00:25:25,600 --> 00:25:29,440
sub stack that he had sold his 
entire GameStop position. 

392
00:25:29,680 --> 00:25:32,920
He wrote that the instant 
Berkshire thesis was never 

393
00:25:32,920 --> 00:25:36,520
compatible with greater than 
five times debt to EBITDA, and 

394
00:25:36,520 --> 00:25:40,720
that he was never OK with 
interest coverage under 4 times.

395
00:25:40,960 --> 00:25:44,840
He calculated that the eBay deal
would push leverage to roughly 

396
00:25:44,840 --> 00:25:49,520
7.7 times earnings, a level he 
described as bordering on 

397
00:25:49,520 --> 00:25:52,400
distressed. 
He pointed to Wayfair and 

398
00:25:52,400 --> 00:25:56,040
Carvana as companies that 
struggled under similar debt 

399
00:25:56,040 --> 00:26:00,760
burdens, noting those are the 
survivors, they are few. 

400
00:26:01,240 --> 00:26:03,920
His closing line was never 
confused. 

401
00:26:03,920 --> 00:26:08,400
Dead for creativity. 
That is genuinely a very good 

402
00:26:08,400 --> 00:26:10,680
line. 
It's the kind of line you arrive

403
00:26:10,680 --> 00:26:14,680
at after spending years watching
people do exactly that. 

404
00:26:14,960 --> 00:26:18,520
It's also a fairly concise 
summary of the entire GameStop 

405
00:26:18,520 --> 00:26:22,840
eBay proposal, which is 
impressive efficiency for five 

406
00:26:22,840 --> 00:26:25,800
words. 
So the man who predicted the 

407
00:26:25,840 --> 00:26:29,880
2008 financial crisis and who 
helped spark the original 

408
00:26:29,880 --> 00:26:34,920
GameStop mania looked at a $56 
billion takeover, funded with a 

409
00:26:34,920 --> 00:26:38,440
highly confident letter from a 
Canadian bank and a billion 

410
00:26:38,440 --> 00:26:41,560
shares that don't exist, and 
decided that the road to 

411
00:26:41,560 --> 00:26:45,120
becoming Berkshire Hathaway 
probably shouldn't pass through 

412
00:26:45,200 --> 00:26:49,640
capitalist hell. 
So with the smart money quietly 

413
00:26:49,640 --> 00:26:53,600
heading for the exit, no 
authorized chairs to issue, and 

414
00:26:53,600 --> 00:26:57,280
a non binding letter from a 
Canadian bank, where exactly is 

415
00:26:57,280 --> 00:26:59,080
the missing money going to come 
from? 

416
00:26:59,560 --> 00:27:03,480
The Wall Street Journal floated 
the idea that Cohen might tap 

417
00:27:03,600 --> 00:27:07,840
outside investors, specifically 
Middle Eastern sovereign wealth 

418
00:27:07,840 --> 00:27:11,000
funds. 
Now this actually makes perfect 

419
00:27:11,000 --> 00:27:14,320
sense if you're looking for an 
investor to throw 10s of 

420
00:27:14,320 --> 00:27:17,440
billions of dollars at a 
structurally unsound business 

421
00:27:17,440 --> 00:27:19,720
plan proposed by a charismatic 
founder. 

422
00:27:20,000 --> 00:27:22,240
You call the people who funded 
We work? 

423
00:27:22,440 --> 00:27:27,000
The people who gave SoftBank $45
billion for a vision fund that 

424
00:27:27,000 --> 00:27:30,280
managed to lose money on 
technology investments during 

425
00:27:30,280 --> 00:27:32,840
the greatest tech bull market in
history? 

426
00:27:33,080 --> 00:27:37,360
The people who have poured over 
$6 billion into Lucid Motors, an

427
00:27:37,360 --> 00:27:41,040
electric car company that lose 
is roughly $800 million a 

428
00:27:41,040 --> 00:27:43,640
quarter and is yet to turn a 
profit. 

429
00:27:43,960 --> 00:27:48,200
The people who put a billion 
dollars into magically AVR 

430
00:27:48,200 --> 00:27:52,200
headset company whose product 
was so underwhelming that their 

431
00:27:52,200 --> 00:27:56,680
own demo videos had to be faked.
And of course the people whose 

432
00:27:56,760 --> 00:28:00,960
own 170 kilometer long Mirror 
City in the desert has been 

433
00:28:00,960 --> 00:28:06,760
scaled back by 98.6% because 
they ran a bit low on cash. 

434
00:28:07,280 --> 00:28:12,320
I believe the latest plan is to 
just use the neon port to export

435
00:28:12,400 --> 00:28:17,000
oil by passing the Strait of 
Hormuz, which is a slight pivot 

436
00:28:17,000 --> 00:28:20,280
from the holographic teachers 
and the robot dinosaur cage 

437
00:28:20,280 --> 00:28:22,920
fighting that was pitched a few 
years ago. 

438
00:28:23,280 --> 00:28:27,560
So asking these funds to back a 
used video game retailers 

439
00:28:27,560 --> 00:28:32,040
hostile takeover of a $50 
billion auction site, it fits 

440
00:28:32,040 --> 00:28:36,520
right into the portfolio. 
Now to be fair to Cohen, we do 

441
00:28:36,520 --> 00:28:40,480
live in an era where making 
enormous M&A announcements with 

442
00:28:40,480 --> 00:28:44,080
questionable follow through has 
become fairly normal. 

443
00:28:44,560 --> 00:28:48,560
Just two weeks ago, SpaceX 
announced that it had secured an

444
00:28:48,560 --> 00:28:53,280
option to acquire an AI coding 
startup called Cursor for $60 

445
00:28:53,280 --> 00:28:56,520
billion. 
Or alternatively, to just pay 

446
00:28:56,520 --> 00:29:00,680
Cursor $10 billion for 
collaboration and not buy them 

447
00:29:00,680 --> 00:29:04,160
at all. 
So it's a $60 billion deal for 

448
00:29:04,160 --> 00:29:08,480
the buyers explicitly built in 
the right to not do the deal for

449
00:29:08,480 --> 00:29:12,880
a $10 billion break fee. 
That's just how things work now.

450
00:29:13,200 --> 00:29:16,720
Acquisitions are optional and 
the $10 billion is just a 

451
00:29:16,720 --> 00:29:20,640
conversation starter. 
Cohen doesn't even have that to 

452
00:29:20,640 --> 00:29:23,440
worry about. 
His offer is non binding. 

453
00:29:23,600 --> 00:29:27,720
If this bid falls apart, which 
it almost certainly will, he can

454
00:29:27,720 --> 00:29:30,960
just walk away. 
In the meantime, he's generated 

455
00:29:30,960 --> 00:29:35,480
a massive news cycle, drawn 
attention to GameStop stock, and

456
00:29:35,480 --> 00:29:39,320
positioned himself closer to the
market capitalization thresholds

457
00:29:39,480 --> 00:29:44,040
in his $35 billion compensation 
package, all without having to 

458
00:29:44,040 --> 00:29:47,480
buy anything. 
Some skeptics might describe 

459
00:29:47,480 --> 00:29:51,160
this as a very innovative 
approach to corporate strategy. 

460
00:29:51,400 --> 00:29:54,440
They might note that announcing 
that you're going to buy 

461
00:29:54,440 --> 00:29:58,000
something to generate excitement
around your stock price with no 

462
00:29:58,000 --> 00:30:01,800
real ability to follow through 
is, well, It's the sort of thing

463
00:30:01,800 --> 00:30:05,480
the SEC used to frown on back 
when things like that were 

464
00:30:05,480 --> 00:30:07,720
frowned upon. 
But who knows? 

465
00:30:07,880 --> 00:30:12,000
Maybe the sovereign wealth funds
will come through, TD will find 

466
00:30:12,000 --> 00:30:16,000
$20 billion down the back of the
sofa, and GameStop will start 

467
00:30:16,000 --> 00:30:20,160
authenticating vintage Rolexes 
next to the used PlayStation 

468
00:30:20,160 --> 00:30:23,080
controllers. 
We'll have to see what happens. 

469
00:30:23,680 --> 00:30:25,560
Thanks again for joining this 
week. 

470
00:30:25,720 --> 00:30:28,840
If you enjoyed the podcast, 
please leave a positive review 

471
00:30:28,840 --> 00:30:30,840
on your favorite podcast 
platform. 

472
00:30:31,040 --> 00:30:33,200
It really helps the podcast to 
grow. 

473
00:30:33,440 --> 00:30:36,120
Have a great week and talk to 
you again soon. 

474
00:30:36,280 --> 00:30:36,600
Bye.