GameStop’s Ryan Cohen Sidesteps Compensation Questions on eBay Deal

Everyone knows by now about GameStop’s $56 billion bid to take over eBay.

What’s far less clear is how the video game retailer, a one-time meme-stock darling with a market cap of $11 billion, could pull it off. Or how much GameStop shareholders would benefit if it does.

(CEO Ryan Cohen told The Wall Street Journal this week that GameStop has built up a 5% stake in the e-commerce giant but claimed Wednesday that eBay suspended his account on the site, if that’s any indication of how the offer was received.) Cohen, who said TD Bank is committed to providing up to $20 billion in debt financing, is also fielding inquiries about whether the incentive for the deal is executive awards that could net him $35 billion in stock if GameStop’s market cap reaches $100 billion. Asked directly about it, his answers were indirect.

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GameStop revealed Cohen’s potential payday in a January filing with the SEC, which the company’s board said was designed to incentivize him “to achieve extraordinary growth.” Basically, Cohen is rewarded if GameStop hits certain market cap and EBITDA targets. He gets a tranche of the award each time GameStop increases its market cap by a multiple of 10 and increases EBITDA by $1 billion. That would mean he’d get the first payout when GameStop reaches $20 billion in market cap and $2 billion in EBITDA, the second when it hits $30 billion in market cap and $3 billion in EBITDA, with additional payments through $100 billion in market cap and $10 billion in EBITDA)

But there’s something unclear here, which CNBC’s Becky Quick expertly put to Cohen multiple times on Monday’s broadcast of the network’s Squawk Box: Couldn’t Cohen simply reach these goals by swallowing up or merging with other companies, which wouldn’t necessarily result in commensurate gains for shareholders?

• “Shareholders wouldn’t necessarily see the same gains that they would if you just grew market cap by growing operating earnings,” she said. “Does it matter if you swallow a bigger company and that’s how you get the market cap, or do the shareholders actually have to see the same gains?” 
• “I don’t benefit, I’m aligned with shareholders,” he said. “Unless our market cap increases substantially and earnings increase substantially, I don’t get any salary, any cash, no golden parachutes, nothing.” That, of course, doesn’t address whether shareholders would stand to gain much if GameStop hit the compensation targets via acquisitions.

Sidestep-by-Sidestep: Quick tried again: “The individual shareholders don’t see that huge benefit if you’re combining a lot more shareholders in with them and then diluting shareholders by issuing more debt on top of it,” she said. “Do you see what I’m saying?” Cohen replied: “If I don’t hit the thresholds, I don’t get anything.” It was a response, to be sure, but not one that answered the question.