Link: https://old.reddit.com/r/Superstonk/comments/1tdrsn1/the_merger_arb_price_action_explained_or_why_ebay/

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The original was posted on /r/Superstonk by /u/MyNi_Redux on 2026-05-15 10:04:57+00:00.

As I'm sure you've all seen, GME has been falling in price while eBay has been going up since the announcement of RC's intention to acquire eBay.

Price action since GME's offer to acquire eBay

There are three interesting things going on here.

The Merger Arb

(... still called a "merger" arb even though technically this is an acquisition)

When an acquirer (GME) announces a stock-inclusive bid for a target (eBay), arb desks immediately put on the pair: long the target, short the acquirer.

They do this because:

1. eBay should converge toward $125, allowing them to capture the spread between current price and offer price
2. Whereas, GME falls because (a) it's issuing stock = dilution, (b) it's most of its spending cash, and (c) the short leg of the arb book itself creates mechanical selling pressure

Institutional eBay shareholders are also shorting GME to hedge the stock portion of the consideration. They lock in the exchange ratio by shorting GME, which will be offset by the GME shares they will receive as half the payment.

Thus, what we're seeing on this chart - EBAY +8.5%, GME -18.8% since May 4 - is that pair trade being put on at scale, plus eBay shareholders locking in the offer.

Market: "We're not there yet"

Now.. pure "merger" arb would suggest eBay trades much closer to deal value. eBay trading is at $113 against a $125 is a ~10% spread.

In a deal the market expected to clear cleanly, the spread would be much tighter (2-4% is typical for friendly, financed deals near close). A 10% gap says the market is pricing meaningful deal-break risk - eBay's board rejected it, regulatory uncertainty, financing uncertainty, or GME walking away.

Market is basically saying, it doesn't buy that this deal closes at $125. It's saying something like there's a real probability of a deal at some premium, but we're not quite there yet.

The Reflexive Effect of GME's Price Drop on eBay's Price

Because the offer is 50% stock, GME's price decline mechanically reduces what eBay holders would actually receive.

At $25 GME, the offer was $125.

At $21.60 GME, the stock half is worth ~14% less, so the blended offer is now closer to ~$116. Because $21.60 x 2.5 = $54, and not $62.50.

To preserve the original $125 offer, RC needs to better his offer on the stock front.

Which just means more GME dilution, which pushes GME lower, and so on. This is the downward spiral risk in stock-heavy hostile bids, and it's part of why the GME selloff is so consistent.

Let me know if you have any questions!