Michael Burry Exits GameStop After Ryan Cohen’s Leveraged eBay Bid
Michael Burry has fully exited his GameStop position after the video-game retailer launched a surprise takeover attempt at eBay, CNBC reported Tuesday. The “Big Short” investor said the GameStop eBay bid required a level of debt he found flatly incompatible with his investment framework.
Burry Breaks Down the Numbers
Writing on Substack late Monday, Burry said he could not reconcile his thesis with a debt-to-EBITDA ratio exceeding five times. He added that interest coverage falling below 4.0x was equally unacceptable. In a pointed sign-off, he wrote: “Never confuse debt for creativity.” Burry told his readers this was his first sale since launching the publication.
His most likely scenario for the deal put leverage at roughly 7.7 times debt to EBITDA. He described that territory as bordering on distressed, citing cautionary examples. Wayfair spent years at similar leverage levels. Carvana nearly collapsed under comparable strain. Both are among the rare survivors of such debt loads, Burry noted.
The Deal That Spooked the Market
GameStop made an unsolicited, nonbinding offer to buy eBay at $125 per share in cash and stock. The implied valuation sits around $55.5 billion, a steep premium to recent trading prices. GameStop’s own market capitalisation is less than $12 billion, making the size of the proposed deal immediately eye-catching.
The bid is structured as a 50-50 cash-and-stock split. GameStop secured a $20 billion financing letter from TD Bank, but that commitment leaves a substantial gap versus the total implied purchase price. GameStop CEO Ryan Cohen declined to spell out a complete financing plan in a CNBC interview Monday, saying the company retains the flexibility to issue equity if needed.
Markets were unimpressed. GameStop shares dropped around 10% on Monday as investors questioned both the feasibility of the takeover and the potential balance-sheet damage it would cause.
Background — The ‘Instant Berkshire’ Vision
Burry had constructed his GameStop position around a specific idea. He believed Cohen could steadily deploy the company’s cash pile into acquisitions, gradually transforming the retailer into a holding company resembling Berkshire Hathaway. That concept required disciplined capital allocation and conservative financing.
The eBay proposal shattered those assumptions. A deal of this scale would demand leverage far beyond anything Burry’s “Instant Berkshire” framework ever anticipated. Once that pillar fell, he said, the rationale for holding the stock no longer existed.
GameStop shares were under continued pressure Tuesday morning as the market digested both the exit of a prominent backer and the unresolved financing questions hanging over the proposed acquisition.
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