Famed investor Michael Burry, whose trades are closely followed, says he dumped his entire position in GameStop (GME) on news of the company’s bid to acquire eBay (EBAY).
In his Substack newsletter, Burry said he doesn’t like the debt that GameStop would have to take on to finance the $56 billion U.S. purchase of eBay.
“I sold my entire GME position,” Burry wrote in the Substack post. “Any which way I sliced it, the Instant Berkshire thesis was never compatible with >5x Debt/EBITDA…”
GameStop made an unsolicited offer to acquire eBay for $125 U.S. per share in cash and stock, valuing the e-commerce company at $55.5 billion U.S.
The current market capitalization of GameStop is a little less than $12 billion U.S. The acquisition is widely expected to strain the company’s balance sheet.
Burry, whose bet against the subprime mortgage market was chronicled in the book “The Big Short,” had previously thought that GameStop could transform itself into a new version of the Berkshire Hathaway (BRK.B) holding company.
“Instant Berkshire did not contemplate anywhere near 5x+ leverage,” Burry wrote, adding: “Never confuse debt for creativity.”
GameStop’s offer for eBay is split evenly between cash and stock, with GameStop securing a $20 billion U.S. financing letter from TD Bank (TD).
That still leaves a large gap between available funding and the implied purchase price, leading to uncertainty on Wall Street about how the deal will work.
GameStop CEO Ryan Cohen says he has the flexibility to issue equity to close a deal but stopped short of outlining a financing plan in media interviews.
eBay has said only that its board of directors will review the takeover offer from GameStop.
GME stock is down 40% over the past five years and trading at $24.16 U.S. per share.
