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Isn’t that just a https://en.wikipedia.org/wiki/Leveraged_buyout https://en.wikipedia.org/wiki/Leveraged_buyout ?

by ceejayoz 6mo ago

AureliusMA 6mo ago
Yup.
croemer 6mo ago
The stock part is more like a merger than a buyout.
sigmoid10 6mo ago
That's just for the cash part. The stock part makes no sense. For this 50/50 deal to work in principle, they'd need to issue around a billion new shares, which would massively dilute the existing ~450M shares. So Ebay shareholders would suddenly own 70% of Gamestop after the deal. It's also highly questionable if investors actually believe the combined stock is worth that much, so the stock price would probably fall and turn those 70% into >90%. At this point it basically becomes a reverse acquisition plus a large loan for the final company from the cash part of the deal.
- ryandamm 6mo ago
  This is not atypical; smaller company “buys” the larger company with debt on the larger company’s books. The blended shareholder mix is mostly the larger company; management comes from the smaller company. The one I was most familiar with was the Discovery “acquisition” of Warner Brothers. Though apparently that’s a little complicated because AT&T was divesting itself of Warner.
Animats 6mo ago
Yes. See [1] for an overview of how this works. When the SEC filing is made, we'll get to see how the deal is structured. The $20 billion from TD Securities becomes a debt obligation of the combined company. There's a tax break in equity to debt conversion, and a second tax break for carried interest. [2] There may be a preferred stock deal or debt refinancing so that TD gets their $20 billion back. Usually, the private equity firm exits within a few years. [1] https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121 https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121 [2] https://www.pgpf.org/article/what-is-the-carried-interest-loophole-and-why-is-it-so-difficult-to-close/ https://www.pgpf.org/article/what-is-the-carried-interest-lo...
- airstrike 6mo ago
  No, it's not a leveraged buyout
  - Animats 6mo ago
    Sure it is. The acquirer is borrowing money for the buyout, and the debt will become a debt of the acquired/merged company. That, by definition, is a leveraged buyout.
    - airstrike 6mo ago
      That is not the definition of a leveraged buyout. This is a public-to-public merger. Some mergers and acquisitions are financed with debt. That does not make them leveraged buyouts. LBOs are private equity deals in which there's no issuance of public stock. The equity portion is, well, private equity. Source: I've advised over 100+ clients on billions worth of M&A and LBO deals in my time as an investment banker in New York.
JumpCrisscross 6mo ago
No, unless any control transaction using any leverage counts. A third of the deal is financed with debt. A fifth is financed with cash. The bulk—fifty percent—is being financed with equity. An LBO would see debt and a thin tranche of cash finance the bulk of the acquisition.

Isn’t that just a https://en.wikipedia.org/wiki/Leveraged_buyout https://en.wikipedia.org/wiki/Leveraged_buyout ?

AureliusMA 6mo ago

Yup.

croemer 6mo ago

The stock part is more like a merger than a buyout.

sigmoid10 6mo ago

That's just for the cash part. The stock part makes no sense. For this 50/50 deal to work in principle, they'd need to issue around a billion new shares, which would massively dilute the existing ~450M shares. So Ebay shareholders would suddenly own 70% of Gamestop after the deal. It's also highly questionable if investors actually believe the combined stock is worth that much, so the stock price would probably fall and turn those 70% into >90%. At this point it basically becomes a reverse acquisition plus a large loan for the final company from the cash part of the deal.

ryandamm 6mo ago
This is not atypical; smaller company “buys” the larger company with debt on the larger company’s books. The blended shareholder mix is mostly the larger company; management comes from the smaller company. The one I was most familiar with was the Discovery “acquisition” of Warner Brothers. Though apparently that’s a little complicated because AT&T was divesting itself of Warner.

Animats 6mo ago

Yes. See [1] for an overview of how this works. When the SEC filing is made, we'll get to see how the deal is structured. The $20 billion from TD Securities becomes a debt obligation of the combined company. There's a tax break in equity to debt conversion, and a second tax break for carried interest. [2] There may be a preferred stock deal or debt refinancing so that TD gets their $20 billion back. Usually, the private equity firm exits within a few years. [1] https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121 https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.121 [2] https://www.pgpf.org/article/what-is-the-carried-interest-loophole-and-why-is-it-so-difficult-to-close/ https://www.pgpf.org/article/what-is-the-carried-interest-lo...

airstrike 6mo ago
No, it's not a leveraged buyout
- Animats 6mo ago
  Sure it is. The acquirer is borrowing money for the buyout, and the debt will become a debt of the acquired/merged company. That, by definition, is a leveraged buyout.
  - airstrike 6mo ago
    That is not the definition of a leveraged buyout. This is a public-to-public merger. Some mergers and acquisitions are financed with debt. That does not make them leveraged buyouts. LBOs are private equity deals in which there's no issuance of public stock. The equity portion is, well, private equity. Source: I've advised over 100+ clients on billions worth of M&A and LBO deals in my time as an investment banker in New York.

JumpCrisscross 6mo ago

No, unless any control transaction using any leverage counts. A third of the deal is financed with debt. A fifth is financed with cash. The bulk—fifty percent—is being financed with equity. An LBO would see debt and a thin tranche of cash finance the bulk of the acquisition.