GSIC Gsi Commerce, Inc. (MM)

E-commerce service provider, eBay Inc. (EBAY) has reached an agreement with GSI Commerce Inc. (GSIC) to settle claims made by shareholders of the latter. The claims, which were related to eBay’s proposed acquisition of GSI, had been filed in the Delaware state court.

Per the settlement terms, holders of GSI stock will receive 33 cents a share in addition to the $29.25-a-share payment already agreed to by eBay. The investors will get the settlement money after the acquisition is wrapped up on June 17. 

eBay had announced its intention to acquire GSI Commerce for $2.4 billion ($29.25 per GSI share) back in March. Close on the heels of the announcement, the merger was opposed by Southeastern Pennsylvania Transportation Authority (Septa), which filed a complaint in the Delaware Chancery Court, stating that the offer made by eBay was a mere bargain price. 

Septa said that GSI Commerce, an e-commerce and marketing services vendor to over 2,000 brands such as Toys “R” Us, the National Football League and Polo Ralph Lauren (RL) was worth much more. The transportation authority also stated that GSI Commerce appears poised for double-digit growth in the future. 

eBay is one of the largest online retailers in the world and appears well positioned to grow through strategic acquisitions. The company also reported a modest first quarter, with earnings of 40 cents per share coming in line with the Zacks Consensus Estimate. Gross revenue of $2.55 billion improved 2.0% sequentially and 15.9% year over year, and also surpassed our expectation by 2.8%. The quarter’s revenue also came in at the high end of the company’s own guidance range of $2.4–$2.5 billion. 

We believe the merger with GSI will help eBay to expand its business and provide a competitive edge over Amazon.com Inc. (AMZN) and Google Inc. (GOOG). However, GSI acquisition cost, which has increased post settlement, could weigh on the shares. 

Though we anticipate that eBay’s profitability will be aided by higher volumes, increased costs and weaker pricing will hurt margins. 

We are maintaining our Neutral rating over the long term (6–12 months). Currently, eBay shares carry a Zacks #3 Rank, indicating a short-term Hold recommendation.

 
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