Is GameStop Paying Too Much for Geeknet?

Both companies announced together that they have entered into a definitive agreement in which GameStop will acquire all the outstanding shares of Geeknet common stock. The transaction has been approved by the board of directors of both companies and will be completed by means of a tender offer.

Under the terms of the transaction, GameStop will purchase Geeknet shares for $20.00 per share in cash. This values the transaction at $140 million, which also includes $37 million in cash and cash equivalents on Geeknet’s balance sheet as of March 31, 2015.

Paul Raines, CEO of GameStop, commented on the acquisition:

This acquisition creates value to all stakeholders involved. The addition of Geeknet is an important expansion of our global multichannel platform and we are excited to leverage their product development expertise to broaden our product offering in the fast-growing collectibles category and deepen relationships with our existing customer base.

However there is a question: Did GameStop overpay for Geeknet?

Previously, Hot Topic and Geeknet had a definitive agreement for $17.50 per share, or a total value of roughly $117 million. Geeknet accepted the offer but later rescinded in favor of GameStop’s offer, seeing it as a “superior proposal.” Geeknet will also pay Hot Topic a termination fee for this trouble.

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During this time, shares of Geeknet jumped from its close of $7.90 on May 22, to the current price level, an increase of about 150%. Prior to the prices jumping (May 22 and on), the highest that the share price had been in the past 52-weeks was $14.15 back in May of 2014.

Geeknet stock also has a consensus analyst price target of $15, 25% below what GameStop is paying.

Shares of Geeknet were up only 0.3% at $19.84, having already priced in this offer over the past two weeks. The stock has a 52-week trading range of $6.92 to $19.92.

Shares of GameStop were up 1.2% at $43.98 Tuesday afternoon. The consensus price target is $46.73 and the 52-week trading range is $31.69 to $46.59.