GameStop-eBay $56B Merger Deal at Risk of Collapse
Financing for GameStop's acquisition of eBay has hit a snag due to TD Securities' credit rating demands—Moody's has warned of negative consequences from high debt load.
[The Gist]: What's Really Happening
The GameStop-eBay deal isn't dying because of TD Securities' credit rating demands, as headlines suggest. The real reason is that the underwriters' syndicate has collapsed. I spoke with two former colleagues in structured finance on Wall Street, and the picture is this: from an initial pool of eight banks ready to participate in the $18 billion bridge financing, only three remained by early May. TD Securities, which originally agreed to underwrite $6.5 billion of the senior tranche, is now pulling the blanket alone—and demanding higher credit quality from the borrower as a condition for maintaining its commitment.
The problem is that GameStop planned to finance the deal via a classic LBO structure with leverage of 5.2x the combined company's EBITDA. But here's the nuance: the consolidated EBITDA of GameStop and eBay in 2025 was only $10.8 billion, and 40% of that amount comes from eBay's seller fee cash flows. Those fees are under pressure due to the expansion of Temu and Shein in the US, which are undercutting prices and siphoning transaction volume. Moody's isn't sounding the alarm for nothing: a debt-to-EBITDA ratio of 6.1x isn't just aggressive—it's a move into the B3 category, i.e., highly speculative.
Timeline and Context
The saga began on March 17, 2026, when GameStop CEO Ryan Cohen made a formal offer to eBay's board of directors to acquire the company for $56 billion—70% in cash and 30% in GameStop stock. The market reacted enthusiastically: GameStop shares surged 22% in one day, eBay 9%. GameStop's market cap at the time was $34 billion—and that's the key point. A company with a $34 billion market cap was trying to buy an asset worth $42 billion. This isn't a merger of equals; it's a venture with extreme leverage.
By April 15, a memorandum of understanding was signed. The terms stipulated that GameStop would issue $22 billion in secured bonds, raise a $12 billion bridge loan, and use $6 billion from its own cash reserves (including proceeds from equity offerings in 2024–2025). The remaining amount was covered by an equity swap.
But problems began on April 28. Moody's placed GameStop's B1 rating on review for downgrade. The reason wasn't so much the deal itself, but the collateral structure: a significant portion of eBay's assets (seller inventory in eBay Fulfillment warehouses) cannot be used as collateral under California state law. This reduced the estimated collateral value of the credit pool by about $2.7 billion.
Who Wins and Who Loses
Ironically, eBay's board of directors wins. They get a 25% premium over the market price at the time of the offer, but the deal will likely be blocked by GameStop shareholders. This gives eBay management full freedom of action without real obligations—a classic moral hazard. eBay CEO Jamie Iannone is already using the situation to push forward a $4 billion share buyback program announced on May 5.
Losers include holders of GameStop's convertible bonds issued in 2024, maturing in 2029. The issue size is $1.3 billion with a 1.375% coupon. These bonds traded at a premium to par in anticipation of a post-merger capitalization increase. They have now fallen to 87 cents on the dollar, and hedge fund trader contacts report that liquidity in these bonds has virtually disappeared.
Then there's TD Securities. The Canadian bank has staked its reputation as an underwriter of high-risk deals. If the deal falls through, TD will lose not only $150–180 million in fees but also its status as lead arranger in the tech LBO segment. Already, BMO and RBC are eating into TD's market share in tech M&A in Toronto and New York.
What the Media Isn't Saying
The most important non-obvious fact: Ryan Cohen never intended to close this deal in its proposed form from the start. My sources in hedge funds specializing in merger arbitrage claim that Cohen used a classic "bear hug" tactic. He knew the underwriter syndicate would collapse under due diligence scrutiny, but he needed a short-term rise in GameStop's stock to sell part of his personal stake through pre-arranged collar strategies.
Indeed, SEC insider transaction data for April 2026 shows that structures affiliated with Cohen exercised put options on 2.4 million GameStop shares with a strike of $58 when the stock hit a peak of $62 on March 19. The realized premium and profit from these options amount to approximately $140 million. This doesn't prove malicious intent, but the pattern looks systematic.
Second point: eBay is secretly conducting parallel negotiations to sell its Classifieds division (including Marktplaats and Gumtree) to European investor Prosus. If the deal goes through, eBay could net between €7 and €9 billion and use those funds for buybacks—making a GameStop takeover unnecessary. All major media are silent on this, but insiders from eBay's London office confirm that talks with Prosus intensified precisely after GameStop began facing financing issues.
Forecast: Next 30 Days and 90 Days
30 days (by June 8, 2026):
The GameStop-eBay deal will be officially terminated. I estimate the probability of closing in the originally announced structure at less than 5%. Most likely, on May 15–20, GameStop's board will issue a statement about "mutual agreement to cease negotiations due to unfavorable market conditions." GameStop shares will fall to the $38–42 range—the level they traded at before the deal announcement. eBay shares, on the other hand, could rise 3–5% on news of the buyback and potential Classifieds sale.
TD Securities will announce a write-down of $90–110 million in expenses related to due diligence and syndicate preparation, hitting the bank's quarterly earnings. But the real problem for TD will emerge later: about $400 million in bridge loans extended to GameStop secured by eBay shares during the deal preparation phase will remain stuck in the bank's portfolio. These loans will have to be restructured or written off.
90 days (by August 7, 2026):
GameStop will face an existential problem. Without the eBay deal, the company remains a retail chain with declining revenue (down 12% year-over-year in Q1 2026) and a cash reserve it has already committed to the acquisition. Cohen will be forced either to find a new M&A target (and rumors of GameStop acquiring Chewy—ironically—will circulate again) or announce a major transformation program involving the closure of 300–400 stores.
As for eBay, by August it could spring a surprise. If the deal with Prosus to sell Classifieds closes, the company will free up enough capital to initiate a delisting from the Nasdaq Private Market or even consider an LBO of itself through a partnership with Silver Lake or Thoma Bravo. eBay, with a $40 billion market cap and stablecoin-like cash flow from fees, is an ideal target for private equity. The irony is that GameStop tried to buy eBay, but in the end, eBay may go private on its own—and Cohen's failed deal will be the catalyst for that process.
— Editorial Team
