Michael Burry has sold his entire GameStop position after the company made a bid for eBay, citing concerns over excessive debt. Burry believes the deal’s leverage jeopardizes his “Instant Berkshire” thesis and warns of potential financial distress. Shares of GameStop fell following the announcement, reflecting investor skepticism.
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Michael Burry, the investor famed for his prescient "Big Short" call during the 2008 financial crisis, has completely divested his stake in GameStop (GME) following the company's unexpected bid to acquire eBay (EBAY). Burry articulated his concerns in a Substack post, stating that the proposed deal's substantial debt load fundamentally undermined the investment thesis he had developed – a vision of GameStop evolving into a diversified holding company akin to Berkshire Hathaway.
GameStop, led by CEO Ryan Cohen, made an unsolicited offer for eBay, valuing the online marketplace at approximately $55.5 billion in a cash and stock transaction. While the offer represents a significant premium over eBay's recent trading price, it has sparked considerable skepticism regarding its financial feasibility. Burry specifically highlighted the proposed leverage of over 5x Debt/EBITDA as unacceptable, noting that his "Instant Berkshire" concept was incompatible with such a capital structure.
He warned that the deal could push GameStop's leverage to around 7.7x, a level he considers dangerously close to distressed territory, drawing parallels to companies like Wayfair, Carvana, and Bath & Body Works, which have struggled under similar debt burdens. Burry emphasized, "Never confuse debt for creativity."
The financing for the eBay acquisition includes a $20 billion letter from TD Bank, but a substantial funding gap remains. Cohen, in a terse interview with CNBC, offered limited details on the financing plan, stating GameStop has the flexibility to issue equity. eBay has acknowledged receiving the offer and stated its board will review it.
Following the announcement, GameStop shares experienced a roughly 10% decline, reflecting investor apprehension about the deal's viability and potential impact on the company's financial health. Burry concluded that GME was the first sale since he started his Substack.
