GameStop‘s mysterious financing letter backing its bold $56 billion offer eBay turns out to be a central issue in the planned takeover, as questions grow as to whether the deal can actually be financed.
The video game retailer said it received a $20 billion financing commitment from TD Securities, part of TD Bank. But one key condition attached to that letter could ultimately make or break the deal: The combined company would have to maintain an investment-grade credit profile, CNBC’s David Faber reported, citing people who have seen the document.
Moody’s Ratings said on Wednesday that the proposed acquisition would be “credit negative” for eBay because the deal structure involves a significant increase in leverage.
The ratings agency estimated that the combined company’s leverage could approach nine times debt to earnings before interest, taxes, depreciation and amortization, excluding cost-saving synergies.
This high level of debt would likely push the combined company below investment grade and potentially undermine a key condition of TD’s financing package.
The proposed acquisition has immediately raised questions about how GameStop could finance a deal of this magnitude. The video game retailer’s market value of around $11 billion is just a fraction of the transaction’s implied value.
CEO Ryan Cohen offered limited clarity on the structure, saying only that his company would be able to issue additional shares to complete the deal.
eBay confirmed in a statement Monday that it had received the offer and said its board would review it.
The New York Times and Semafor reported on the mysterious letter on Wednesday.
