How to Launch an Unsolicited Acquisition Bid Against a Larger Rival: The GameStop-eBay Playbook

Introduction

When GameStop, a struggling video-game retailer with a market cap roughly one-quarter of eBay’s, made an unsolicited offer to buy the e-commerce giant for $55.5 billion, the business world gasped. Chairman and CEO Ryan Cohen argued that eBay underperforms on sales and marketing efficiency, and that combining it with GameStop’s 1,600 U.S. physical locations could create a powerhouse for authentication, fulfillment, and live commerce. But investors quickly questioned how GameStop would pay for a company four times its size. This guide breaks down the steps involved in making such a bold, David-versus-Goliath acquisition attempt—using the real-world GameStop–eBay case as a template. Whether you’re a corporate strategist, an entrepreneur, or a curious observer, these steps will help you understand the mechanics and risks of a hostile bid against a much larger target.

What You Need

• A publicly traded company with a strong strategic rationale for acquiring a larger firm
• Access to substantial debt financing (e.g., bank loans, bond issuance)
• A mix of cash on hand and the ability to issue new stock
• A compelling letter outlining synergies and cost savings
• Legal and financial advisors experienced in mergers and acquisitions
• A plan to manage market skepticism and regulatory hurdles

1. Step 1: Identify a Target That Is Underperforming in Your Eyes

Start by scanning the market for companies that, despite size, have room for improvement. In GameStop’s case, Cohen pointed to eBay’s high spending on sales and marketing relative to its growth. Look for targets where your company’s unique assets—like physical stores, logistics networks, or brand loyalty—can fill a gap. Perform a thorough analysis of the target’s financials, operational weaknesses, and strategic missteps. The goal is to argue that you can run the business more efficiently or unlock hidden value.

2. Step 2: Draft an Unsolicited Offer Letter

Write a formal letter to the target’s board of directors. Cohen’s letter to eBay chairman Paul Pressler stated the offer price ($55.5 billion) and outlined the proposed synergies. Make the tone respectful but direct, emphasizing the urgency of the opportunity. Explain why the target is undervalued and how a combination would create a stronger entity. Include specific numbers: cost savings, revenue synergies, and the premium you’re offering over the current stock price.

3. Step 3: Articulate Clear Synergies Between the Two Businesses

This is the heart of your proposal. For GameStop, the key synergy was using its 1,600 U.S. stores as a network for eBay’s authentication, intake, fulfillment, and live commerce. Detail how each operational aspect will be improved. For instance: physical drop-off points for items, faster shipping from local stores, and lower return rates due to in-person authentication. Use data or case studies to back up your claims. The more concrete the synergies, the harder it is for the target’s board to dismiss your offer.

4. Step 4: Calculate a Realistic Offer Price

Determine the premium you’re willing to pay. GameStop offered $55.5 billion for a company worth roughly four times its own market cap. That premium must be attractive enough for eBay shareholders to sell, yet low enough that GameStop can justify the deal to its own investors. Use a mix of discounted cash flow analysis and comparable company valuations. Be prepared to adjust the price based on the target’s reaction and competing bids.

5. Step 5: Secure Financing Despite Size Disparity

This is the trickiest part. GameStop said it would use a mix of cash, stock, and debt financing. When your company is smaller than the target, lenders will be skeptical. You need to show credible commitments from banks or private equity. Consider offering a portion of the purchase price in your own stock to reduce cash needs. But beware: issuing too much stock can dilute existing shareholders and depress your stock price. In GameStop’s case, the market immediately questioned the viability of its financing plan. To avoid this, line up underwritten debt commitments before announcing the offer.



6. Step 6: Address Market Skepticism Transparently

After the announcement, analysts and media will highlight the gap between your market cap and the deal size. In GameStop’s situation, the fact that eBay’s market cap was over four times larger raised red flags. Prepare a Q&A document that explains the financing structure, the expected debt-to-equity ratio, and the projected post-acquisition cash flows. Use roadshows with institutional investors to reassure them. If necessary, provide a timeline for when the financing will be finalized.

7. Step 7: Navigate Regulatory and Corporate Defense Challenges

Even if financing is in place, the target’s board may adopt a poison pill or seek a white knight. eBay could also argue antitrust concerns if the combined company dominates certain markets (e.g., online luxury goods). Hire antitrust lawyers to pre-clear the deal in key jurisdictions. Also, be prepared for a proxy fight to replace the target’s board if they reject your offer. GameStop’s offer was unsolicited, meaning eBay could simply say “no” and ask shareholders to reject it. Plan your defense strategy in advance.

Tips for Success

• Don’t underestimate the power of a credible financing plan. Without it, your offer is just noise. Get committed financing before you go public.
• Focus on synergies that are unique to your combination. Generic cost-cutting won’t win over skeptical investors. Show how your physical assets (like GameStop’s stores) directly solve the target’s pain points.
• Be prepared for rejection. Many unsolicited bids fail. Have a Plan B, such as a friendly negotiation or a cooperative investment stake.
• Monitor your own stock price. If your shares drop after the announcement, it weakens your currency for stock-for-stock exchanges.
• Keep communications clear and consistent. The Cohen letter was direct, but many follow-up questions remained unanswered. Provide regular updates to the market.