Updated GME EBAY Merger DCF - Ryan Cohen's Vision to Achieving EBAY's 40% EBIT Margin
[Updated GME EBAY Merger DCF](https://docs.google.com/spreadsheets/d/1DdA2-maorGhsf1_msQ6TsihIcRkoMhfh/edit?usp=sharing&ouid=106284249597555720895&rtpof=true&sd=true)
The deal is potentially possible. So I have to entertain it and create a DCF model.
I updated my GME EBAY Merger DCF model because the previous model was messy, and the inputs did not align with Ryan Cohen's transformational vision for EBAY. I included Ryan Cohen's $2b in cost saving measures under synergies, and I also improved EBAY's assumptions to align closer to the 40% EBIT margin that RC is striving for.
This DCF model projects free cash flows from GME and EBAY separately, and adds synergies to the total operating profit.
**Operating assumptions**
**Bear case**
* Terminal growth rate: 1.5%
* EBAY: Revenue Growth: 0.5%, EBIT Margin 30%
* RC expects to improve EBIT Margin to 40%, so this bear case underachieves his goal
* GME: Revenue Growth: 0%, EBIT Margin: 7%
* Quite low and similar to 2025's EBIT margin
* Cost synergy EBIT ramp up to 2030 up to $750m
* Revenue synergy EBIT stagnates at $50m by 2030
* Integration costs $950m the first 3 years
**Base case**
* Terminal growth rate: 2.0%
* EBAY: Revenue Growth: 1.5%, EBIT Margin: 34%
* Modest increase from the bear case, but still not fully achieving RC's goal
* GME: Revenue Growth: 2%, EBIT Margin: 10%
* Modest improvements to GME's operations
* Cost synergy EBIT ramps up to $1.3b by 2030
* Revenue synergy EBIT reaches $225m by 2030
* Integration costs increase to $1.35b
**RC Bull case**
* Terminal growth rate: 2.5%
* EBAY: Revenue growth: 3.0%, EBIT Margin 39% - practically reaching RC's vision
* GME: Revenue growth: 4.0%, EBIT Margin: 14%
* GME benefits significantly from synergies
* Cost synergy EBIT improves to $2b by 2030
* Revenue synergy EBIT significantly increases to $600m by 2030
* Integration costs increase to $1.7b across the first 4 years
I tested issuance prices of $25, $32, and $40, and I noticed equity value per share fluctuations.
Diluting at $25 per share is most harmful, while diluting at $32+ leads to accretion.
Issuance price is critical for the execution of this acquisition, and while the Base Case 50% cash, 50% shares leads to a share count of 1.6b shares outstanding and an equity value per share of $23.11, there is significant upside to $27-$30 if shares are issued at $32 or $40 respectively.
Lastly, I tested financial stress tests, entertaining the idea of different consideration mixes. I kept the base operating case assumptions the same across these stress tests.
Base Stress 70% Cash 30% Shares, Issuance price $25: Equity value per share decreases to $22.11, compared to the 50/50 mix base case with an equity value per share of $23.11.
Debt increased over $10b, more debt = bad
I tested the opposite next, Base Stress 30% Cash 70% Shares Issuance price $25: Equity value per share increases to $23.70 compared to the base 50/50 mix $23.11. Shares outstanding increased over 500m.
More dilution = accretion!
I encourage you to create a copy for yourself and create your own cases based on your own assumptions. This Merger DCF model shows that the deal is possible, and issuance price and debt heavily influence outcomes beyond operating assumptions and synergies.
