EBay Inc agreed to sell 65 per cent of its Skype internet-calling unit to an investor group led by Silver Lake for about $2 billion to focus on reviving sales at its main e-commerce site.
The buyers will pay $1.9 billion in cash and will also give EBay a $125 million note, the company said in a statement today. Ebay, which had planned an initial public offering for Skype, will retain 35 per cent of the business. The deal values Skype at $2.75 billion.
The sale lessens Chief Executive Officer John Donahoe’s dependence on a unit that he has said doesn’t fit with the rest of EBay’s operations. The company is improving its Internet- retail operations to stem customer defections to Amazon.com Inc. Donahoe’s predecessor bought Skype for about $2.6 billion in 2005 and wrote down its value the following year.
“This is an excellent deal,” said Jeffrey Lindsay, an analyst at Sanford C Bernstein & Co in New York. An IPO was a year away and investors were expecting that to value Skype at $2.5 billion at most, he said. “Now it’s like a bird in hand.”
EBay may use the proceeds for stock buybacks and small acquisitions, Lindsay said. He projects the stock will perform in line with the market and doesn’t own it.
The other investors in the group are Andreessen Horowitz, a venture-capital firm headed by internet pioneer Marc Andreessen; Index Ventures, a firm that invested in Skype before EBay acquired it; and Canada Pension Plan Investment Board.
EBay, based in San Jose, California, gained 21 cents, or 1 per cent, to $22.35 at 11 am New York time on the Nasdaq Stock Market. The stock had added 59 per cent this year before today.
Skype, started in 2002, lets people make calls from their computers to land lines and mobile phones, as well as other computers. It makes money when users call regular phones, set up voice mail and use text-messaging services.
Skype’s revenue grew 25 per cent to $170 million in the second quarter. EBay predicts Skype’s sales will top $1 billion in 2011. The service added 37.3 million users in the three-month period, for a total of 480.5 million.
The sale will accelerate Skype’s growth as the business gets help from the investor group that includes people with technology and company-development expertise, Egon Durban, Silver Lake’s managing director, said in a separate release.
Silver Lake, based in Menlo Park, California, focuses on investments in technology companies. The firm, started in 1999, raised a $9.4 billion fund in 2007.
Even as Skype grew, EBay never made good on its original promise for the business: integrating the service into its e- commerce site, so buyers and sellers could use it to discuss large purchases. EBay wrote down Skype’s value to $1.2 billion in 2006. “It has no synergies with the business,” Lindsay said. “Investors hated it from the minute it happened.”
Donahoe said in May Skype’s value in an IPO may be more than $2 billion. The IPO was scheduled for the first half of 2010, and EBay said in July it was continuing its efforts to split off Skype.
EBay is also entangled in a legal dispute with Skype’s founders, who still own a piece of software used by the calling service and have accused EBay of breaching a licensing deal. Skype told a London court in April that it may have to suspend the service if it can’t resolve the fight.
