When a small-sized firm that raised cash by selling shares tries to buy a company four times bigger, investors may arbitrage.
On the weekend, WSJ reported that GameStop (GME) wanted to buy eBay (EBAY). GameStop confirmed on Monday that it proposed a non-binding deal to buy eBay for $125 a share. TD Bank (TD) would lend GameStop $20 billion to fund the deal.
On paper, the deal makes sense. GameStop sells used games, while eBay is an auction site that sells almost anything. GameStop would pay eBay 50% in cash and 50% in GameStop common stock. eBay said that it would review the offer. However, GameStop said it would approach shareholders if eBay did not support the deal.
The shipping logistics change from Amazon (AMZN) sank shares of United Parcel Service (UPS) and FedEx (FDX) on Monday. UPS lost 10.5%, while FDX stock dropped by 9.1%. Amazon announced that Amazon Supply Chain Services would offer bundling for its full logistics. Freight, distribution, fulfillment, and parcel shipping will open to third-party businesses, regardless of their size.
Amazon secured customers that included Procter & Gamble (PG), 3M (MMM), American Eagle Outfitters (AEO), and Lands’ End (LE). GXO Logistics (GXO) and Hub Group (HUBG) shares also fell.
The reaction is irrational. UPS has sophisticated logistics and a reliable service that operates at scale. No other firm may copy its pickup service provided to small- to mid-sized companies.
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