Internet auction house EBay Inc plans to sell a majority stake in
its online phone unit Skype for $1.9 billion to private investors
including Silver Lake, a deal analysts said was worth more than
expected but may curb eBay's growth potential.
The deal valued Skype at $2.75 billion but was well below the $3.1
billion eBay spent in acquiring Skype, and shares in eBay fell more
than 2 percent after the news.
The company said the sale of a 65 percent stake allows eBay to focus
on its auction service and its PayPal electronic payments service
and avoid the potential risks of the initial public offering it had
slated for Skype for next year.
Analysts said the sale to the investors, which included a venture
firm run by Netscape co-founder Marc Andreessen, also highlighted
concerns about the remainder of eBay, which faces stiff competition
from rival Amazon.com Inc.
"It just returns the spotlight on the central issues eBay faces,"
said Atlantic Equities analyst James Cordwell, although he said the
price was good for eBay.
Kaufman analyst Aaron Kessler said in a research note that selling
eBay's fastest growing business would "clearly reduce the overall
growth of eBay" and potentially lead investors to lower the amount
they're willing to pay for eBay shares.
The group buying Skype includes London-based Index Ventures and the
Canada Pension Plan Investment Board (CPPIB), along with Silver Lake
and Andreessen Horowitz.
Susquehanna Financial Group analyst Marianne Wolk said the valuation
was at the high end of her expectations.
"It eliminates the risk of the planned IPO and is a better price
than many of us expected," Wolk said. The valuation is 24 times
Wolk's 2009 estimate for Skype after-tax earnings contribution to
eBay, or 4 times her revenue estimate.
John Donahoe, eBay's chief executive, had said in May that a $2
billion valuation would be low for the growing Internet telephone
business.
EQUITY DEALS
More than half the purchase price was financed by equity, a
source familiar with the deal said. Typically, private equity firms
finance purchases heavily with debt, but it has become more
expensive and harder to raise financing since the credit crunch has
limited access to financing.
Some private equity deals, for example, have been struck with 100
percent equity and no debt.
A separate source close to the deal said Silver Lake is providing
the majority of the equity capital and CPPIB is contributing a
significant portion of the capital. Index Ventures and Andreessen
Horowitz are smaller funds but making very substantial investments
for their size, the person said.
Skype, whose 2008 revenue rose 44 percent to $551 million, charges
for calls to regular telephones but provides free
computer-to-computer voice, video and text services. It had about
405 million registered users at the end of 2008.
About two years after the purchase, eBay made a $500 million payout
for the founders on top of the $2.6 billion it paid for the company
in 2005. It also wrote down about $1.4 billion off the value of its
investment as it conceded that the telephony unit does not fit with
eBay's other businesses.
"Skype is a strong stand-alone business, but it does not have
synergies with our e-commerce and online payments business," Donahoe
said in a statement on Tuesday.
Susquehanna's Wolk said keeping a Skype stake made sense, as eBay
could still benefit from Skype's growth.
"You don't know if there's an incentive to IPO the remaining stake
downstream," she said.
EBay said the deal would close in the fourth quarter. The
transaction is not subject to a financing condition.
JP Morgan, Barclays and RBC Capital markets advised Silver Lake and
its investor group and committed to provide financing for the deal.
Goldman Sachs advised eBay on the deal.
Shares in eBay were down 47 cents, or 2.1 percent, to $21.67 on
Nasdaq compared with a 1.8 percent market decline. The company's
shares have shot up from just under $17 in July on hopes of an
improving business environment.
Source:
reuters.com
