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Comment by manwithnoplan | Hacker News Reader

A lot of the comments here seem to assume that a smaller public company can’t acquire a larger one, which just isn’t true.

A quick search for how leveraged acquisitions, stock-for-stock deals, financing commitments, or tender offers work would answer most of the objections.

Is it too much to ask the Hacker News commentariat to do one quick search before collectively declaring that something they don’t understand is impossible?

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There’s one comment as of the time of your post that makes this assumption - you could have replied to them directly.

It is implicitly implied in many comments.

“Implicitly implied” is redundant. Either of these phrasings would suffice:

> It is implicit in many comments.

> It is implied in many comments.

Well, it's called "tautology" and it's a perfectly valid rhetorical device.

A tautology is a sentence vacuously true. This is called a pleonasm.

Was about to post the same thing. It is indeed the under-appreciated pleonasm rather than a tautology.

Yes, mixed the two. Point stands though.

Links?

I see a single comment mentioning it is impossible. No sign of a collective declaration. I think you’re overreacting

I think you are under reacting.

I imagine the vast majority of us do not have a problem understanding smaller companies can buy larger ones. Most of us are just incredulous that anyone is taking GameStop, especially Cohen, seriously.

I think we also all assume that it is probably not a healthy feature of capitalism.

Why wouldn't they? Before he showed up, Gamestop had years of negative earnings per share. They haven't had a negative EPS quarter in almost 2 years, now. That seems like a serious turnaround.

You’re omitting the fact that they’ve had declining revenue YoY 4 years now, with no sign this won’t be year 5. Their liquidity is primarily the result of leveraged debt and sold off shares. They have had to seriously downsize, including shuttering tons of brick and mortars.

You’re picking one single metric that’s not even consistent for 2 years to assess the health of the company. It feels rather cherry-picked. The whole story is very rough for them right now, they’re in trouble.

Seasonally-adjusted EPS has been a consistent stair-step up for 2 years. Declining revenue does not matter; they're squeezing more profit out of the revenue that's left than they were out of the gobs of revenue they had before. That's just what a good business does.

>You’re picking one single metric It's THE metric. And you are, too (a single metric, but not THE metric).

>The whole story is very rough for them right now, they’re in trouble.

Trumpian logic and speech pattern. Which speaks to its lack of veracity.

> Declining revenue does not matter

When the revenue goes to zero, how much of that pie will be profit? The industry they're in is dying quite quickly, and there are no other revenue centers. The high margin business they had was reselling physical game media.

This is the same story as other dead physical media, CD's, DVDs, etc. It's going to continue to decline, and GME has no pipeline of future revenue. They continue to close stores and shrink.

Also, yikes https://xcancel.com/sshxbt/status/2051311101279887652

Totally agree with your take here.

Also, “revenue isn’t important” (sic) is a wild statement to me and indicative of the state of US businesses these days. The stock is the product, that is it, and a shocking number of people have no issue with that while also saying the US needs to bring back manufacturing and build things again.

If investor (and now government with AI projects) money is being funneled into businesses that are ultimately just about their stocks and not producing anything, what will be the result of all that investment? What are we not investing in as a result?

Example from quite some time ago: Avast buying AVG. The value of AVG was around twice that of Avast.

AOL/TimeWarner, Kmart/Sears… lots of prominent examples.

Also when Capital Cities purchased ABC. A popular phrase coined by the media was "minnow swallows whale"

https://www.nytimes.com/2022/05/25/business/media/thomas-s-m...

Interesting how none of these are around anymore

And much more recently: Paramount Skydance / Warner Brothers.

>Is it too much to ask the Hacker News commentariat to do one quick search before collectively declaring that something they don’t understand is impossible?

A quick review of the comments here would have demonstrated that it is.

But if it all goes sour nobody will be held accountable and two not one company are ruined.

I don't see how such leveraged acquisitions should be legal.

Is there anywhere a good breakdown of these leveraged acquisitions. Like a video or something that breaks down how that exactly works and why its legal and why the acquired company goes along with it. Its seems like such a strange mechanism. And the history of it.

Why would it not be legal? You can take out any loan, so long as the creditor believes in your ability to pay it back with interest, which informs how it gets priced. This is basically Finance 201 and everyone is up in arms ITT

But if that loan is used to basically acquire, or rather help another company acquire the company with the debt? So basically creating debt to facilitate mergers. But to be honest I don't fully understand all the financial engineering.

They better not ruin eBay, it's actually a useful business, I use it all the time

Speaking as someone who used to know absolutely nothing about the world of high finance, yes, it is too much to ask.

Before I started paying attention to such things I wouldn't have known a single one of those terms to even begin googling.

And let's be honest here. A smaller company saddled with big debt buying out an even larger company really doesn't make logical sense. It makes financial sense, which is subject to different laws of mathematics, probably involving the waiter's check pad in an Italian bistro.

Agreed that Marvin would find this (and everything about Earth) ridiculous.

I propose this would make sense in the animal kingdom though; large, lumbering fatty walks along. It has big claws, but … it doesn’t look like it can be bothered to be dangerous anymore. Meanwhile a pack of hungry successful hunters walk alongside. To take this down, they will risk pretty much everything..

It’s the same story. The shareholders provide a sort of bet on if the big guy has still got it, or the risk-on hunters do.

That’s why the operational results got attention in Cohen’s letter — he’s telling Shareholders: “I turned around GameStop. I can turn this ship around, too.”

GameStop has zero debt and billions in cash on its books. It is not a stretch for them to be making this offer. It really does make sense here for both sides.

> Is it too much to ask the Hacker News commentariat to do one quick search

Are you new here?

> A quick search for how leveraged acquisitions, stock-for-stock deals, financing commitments, or tender offers work would answer most of the objections.

Isn’t the assumption that it’s impossible intuitively justified if you have no background in finances? A small fish usually can’t devour a bigger fish either.

Also, all those terms you mentioned mean nothing to me. You can’t search for what you don’t know exists.

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