-- (Updates to include eBay's statement in the third paragraph)
EBay (EBAY) shares rose early Monday after video game retailer GameStop (GME) proposed to acquire the e-commerce company in a cash-and-stock deal worth about $55.5 billion.
GameStop, which currently has a 5% stake in eBay, has offered to purchase the company for $125 a share, it said in a Sunday statement. The nonbinding proposal, which is structured as an equal mix of cash and stock, represents a premium of 46% to eBay's closing share price as of Feb. 4, the day GameStop started building up its position in the company.
In a statement on Monday, eBay confirmed it received an unsolicited proposal from GameStop and said its board of directors will review the offer. The company said it had no discussions with or outreach from GameStop before receiving the proposal.
Ebay's stock climbed 7.4% in the most recent premarket activity, while GameStop declined 2.8%.
GameStop plans to fund the cash portion of the potential transaction through a combination of cash and liquid investments on its balance sheet, amounting to about $9.4 billion at the end of January, as well as up to $20 billion in potential financing from TD Securities.
In a Sunday letter to eBay Chairman Paul Pressler, GameStop Chief Executive Ryan Cohen said the video game retailer aims to eliminate $2 billion of the e-commerce company's annualized costs within a year of the potential deal's completion, including $1.2 billion in sales and marketing. The cost reductions are expected to increase eBay's per-share earnings from continuing operations to $7.79 from $4.26 in the first year, according to Cohen.
Cohen, who also owns roughly 9% of GameStop, proposed to serve as CEO of the combined company. "I will receive no salary, no cash bonuses, and no golden parachute - I will be compensated solely based on the performance of the combined company," he said in the letter.
In an interview with The Wall Street Journal, Cohen said he's prepared to pursue a proxy fight and present the proposal directly to shareholders if eBay isn't receptive.
Last week, eBay reported first-quarter adjusted EPS from continuing operations of $1.66, up from $1.37 year earlier. Revenue advanced 19% to $3.09 billion. At the time, the company said it expects adjusted EPS from continuing operations to come in between $1.46 and $1.51 and revenue to be in a range of $2.97 billion to $3.03 billion in the second quarter. The current consensus on FactSet is for non-GAAP EPS of $1.51 and sales of $3.01 billion.