By Kit Norton

GameStop wants to acquire eBay. If the deal goes through it could flood the market with more GameStop shares and drive up short interest, according to a new report.

GameStop CEO Ryan Cohen's plan to purchase eBay for $56 billion, or $125 a share, in a half cash and half stock transaction could dramatically increase GameStop's share count and push short interest to about 50% of float, if merger arbitrage traders short even 15% of the new shares, Leon Gross, director of research for S3 Partners, wrote Thursday.

In that scenario, borrow costs could spike dramatically.

"A much higher short interest could push borrow costs higher," Gross wrote. "Options markets are not pricing in higher borrow costs, creating potential for investors who expect higher borrow rates if the deal occurs, using synthetic shorts."

Gross added that if eBay rejects the deal, the unwind of merger-related shorts could trigger a squeeze.

The main issue at hand is the size mismatch between eBay and GameStop.

EBay currently has a market value of around $48 billion while GameStop's market value sits at $11.3 million. GameStop stock declined 4.9% to $23.95 on Thursday but are up 19% so far this year. Meanwhile, eBay shares edged 1.6% lower to $106.42.

Of the $56 billion, GameStop has about $30 billion lined up -- more than $9 billion in cash on its balance sheet and a $20 billion debt financing commitment from TD Securities. Cohen has said the deal could get done by issuing more stock.

Gross argued that under the structure of the proposal, about 440 million shares of eBay would be acquired and that about 964 million new GameStop shares would be issued, compared with its current 448 million shares.

"If 15% of the new GME-expected were shorted by deal arbitrage traders, that would add 144 million new shorts -- roughly 2.5× the current short interest -- bringing the total to 205 million shares or 50% before the deal closes," Gross wrote.

However, nothing with this deal is certain.

EBay is reviewing the unsolicited offer "to determine the course of action" for it and its shareholders, the company said on Monday.

Prominent money manager Bill Smead, whose firm has been an eBay stakeholder for nearly 20 years, told Barron's Wednesday that he doesn't "see any reason for eBay to sell to GameStop."

Write to Kit Norton at kit.norton@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

May 07, 2026 16:46 ET (20:46 GMT)