Q: Good morning,
Yesterday GameStop made an unsolicited, non-binding offer to acquire eBay for $125/share in cash and stock, valuing the company at roughly $55.5 billion. GameStop’s market capitalization is a little less than $12 billion.
The proposal is a steep premium to recent trading levels, but also raises questions about financing. Apparently TD has committed ~ $20bn to the financing of this proposed transaction.
Shares of GameStop fell about 10% Monday following the announcement, reflecting investor skepticism around the feasibility of the deal and the potential strain on the company’s balance sheet.
I have read that the more likely outcome at the proposed valuation would push leverage to roughly 7.7x debt to earnings before interest, taxes, depreciation and amortization — a level bordering on distressed.
As a TD shareholder, should I be worried?
Thanks as always.
Yesterday GameStop made an unsolicited, non-binding offer to acquire eBay for $125/share in cash and stock, valuing the company at roughly $55.5 billion. GameStop’s market capitalization is a little less than $12 billion.
The proposal is a steep premium to recent trading levels, but also raises questions about financing. Apparently TD has committed ~ $20bn to the financing of this proposed transaction.
Shares of GameStop fell about 10% Monday following the announcement, reflecting investor skepticism around the feasibility of the deal and the potential strain on the company’s balance sheet.
I have read that the more likely outcome at the proposed valuation would push leverage to roughly 7.7x debt to earnings before interest, taxes, depreciation and amortization — a level bordering on distressed.
As a TD shareholder, should I be worried?
Thanks as always.
5i Research Answer:
It is a big loan, with TD current equity at about $127 billion. However, despite being the 'lead' here in almost all cases such loans are syndicated off to others so that the bank does not take on all the risk. We would not see a big issue here because of this.