Ryan Cohen made headlines on Sunday evening when he announced a $55.5 billion bid for eBay. However, by Monday night, the renowned value investor had completely divested himself of all his GameStop shares. This investor, none other than Michael Burry, who is famously known for his involvement in GameStop’s saga, did not exit quietly. In a Substack post, he explained his reasons for selling his entire GME position and his concerns about Cohen’s ambitious bid for eBay.
Burry’s investment thesis was centered around what he called the “Instant Berkshire” approach. He believed in Cohen’s ability to compound capital slowly, make disciplined acquisitions, and build a durable business without resorting to excessive debt. However, the $55.5 billion offer for eBay from a company with a market cap of approximately $12 billion did not align with Burry’s vision of patient capital allocation. The deal would have pushed leverage to unsustainable levels, which Burry deemed as “bordering on distressed.”
The news of Burry’s exit had a significant impact on GameStop’s stock price, causing a 10% drop on May 4, marking its largest intraday fall in 10 months. This market reaction reflected concerns about the risks associated with a company of GameStop’s size attempting to absorb a much larger entity like eBay. Despite Cohen’s reassurances about the flexibility to issue equity to finance the deal, Burry criticized the capital markets approach as “pedestrian” and lacking creativity.
Burry’s departure not only signals a loss of credibility for Cohen but also raises questions about the viability of the eBay deal. As the most credible institutional voice in the bullish camp, Burry’s endorsement gave GameStop legitimacy as a value proposition rather than just a speculative stock. Without his support, Cohen now faces the challenge of justifying his bid without the backing of a respected investor like Burry.
The key takeaway from Burry’s exit is the underlying concern about leverage and the implications it has on the company’s competitiveness and innovation. If a disciplined value investor like Burry believes that the deal crosses an unsustainable threshold in terms of leverage, remaining shareholders must consider whether they share the same concerns or are willing to take the risk. The outcome of this decision will ultimately determine the future trajectory of GameStop.
