Ryan Cohen isn't done chasing eBay. A few weeks after his offer to purchase the online marketplace was rejected and described by eBay's board as "neither credible nor attractive," the Chewy co-founder and GameStop activist-turned-CEO suggested to Barron's that he's willing to take GameStop's offer directly to eBay shareholders.
In a roughly hourlong conversation with Barron's, Cohen said his company's offer to eBay isn't just credible but also in the interest of shareholders.
After years of slashing costs and closing stores, GameStop this week reported its most profitable quarter on record. It's a sign of the company's transformation from meme-driven videogame retailer to a leading seller of collectibles.
Cohen and team have arguably created a viable rival to eBay, at least in the red-hot area of trading cards. He says the synergies would create value for both GameStop and eBay.
"The categories where we're having the most success, eBay is as well. And what eBay is doing online, we're doing offline," Cohen says. "These are businesses that tie in very well."
In the end, Cohen seems to be taking eBay's rejection personally and has continued to build his company's position in the stock. At last count, GameStop had a 7.8% stake in eBay.
"I want to own eBay," Cohen says. "I want to own it for the long term. It's a great business that's been poorly managed."
Cohen had plenty more to say in a June 4 interview. Here's an edited version of the conversation:
Barron's : What went into GameStop's latest quarter?
Ryan Cohen: It was the best first-quarter operating earnings in the company's history. The collectibles business is very strong. We've got a dominant position in the category. Refurbished tech is really strong. And these are categories that directly overlap with eBay's business.
You've said previously that GameStop didn't necessarily "excite you" but eBay does. What does that mean?
My circle of competence is e-commerce. I had a lot of learning to do going into a physical retailer. There's a lot of the things that worked well at Chewy -- it's a different playbook in physical retail.
But eBay's business is a business that is similar to Chewy. I understand e-commerce, and it's my wheelhouse. E-commerce is something I understand very well, whereas physical retail was learning on the job.
How would you balance the debt load?
I built Chewy with negative working capital, so it actually consumed very little cash to turn it from zero into a multibillion-dollar company with negative working capital.
GameStop has a strong balance sheet. And at eBay, I don't want to run a hot business. So, my focus would be on rapidly deleveraging it and pulling costs out of the system. I've said that I'm going to pull $2 billion out. There's a lot of fat to cut over there, and it's going to make the business stronger, the same way it has made GameStop stronger.
When you're overweight and you get in shape, you're healthier. GameStop today is a much stronger business than it was when its expenses were double.
Why hasn't private equity swooped in?
Private equity is really good at raising money and charging management fees. I'm an operator. You tell me: Are there other examples like GameStop? You have a company that's in such a decline, in such a difficult industry, but in a few years it's totally different. Nobody talks about it.
I definitely haven't seen anything like GameStop.
By the way, with cost-cutting, going to expensive consultants that are going to charge $50 million or $100 million and deliver a PowerPoint presentation, that's not the way to pull costs out of the system.
Are you trying for a Berkshire Hathaway--type play? Some of the things you've said about eBay, the brand, do echo Warren Buffett-isms.
Buffett is successful because he's aligned with shareholders.
But eBay rejected the offer. They called it "not credible." It seems like they don't want to sell it to you.
It's not surprising. We presented a highly credible offer, and it's exactly what you would expect from a professional board and management team that isn't aligned with shareholders. So, it's par for the course.
Why is your offer attractive for eBay shareholders?
It's at a significant premium from where the stock was when GameStop started buying it, and ultimately, they'd be taking half cash off the table and rolling the other half into a business that is run by me -- a business that is going to make a lot more money. And I'm not receiving risk-free compensation and selling stock without putting money on the line. I'm running a business, and I've got my own money on the line.
What do you say to people who like how eBay has been doing?
Well, I like eBay's business, too. That's why I offered to buy the business. But if you look at how the business has done, from an operating performance standpoint, every single important metric is down.
I love the business. It is what I'd consider to be one of the greatest businesses in the world. But it's got a lot of untapped potential. It's underearning, and it's something that can be significantly more profitable and significantly larger.
Would you get rid of GameStop branding on stores? Would they be eBay stores?
No, GameStop is nostalgic. It's iconic. And it's not going to be rebranded.
You've been cheered on by retail investors for years. How have they reacted to your eBay offer?
You'd have to ask individual retail shareholders. Everyone has their own different perspective. So, I can't speak on that.
The good thing about this situation at eBay is that ultimately this will be resolved by shareholders. The board and the management team cannot run and hide forever.
Thanks, Ryan.
