April 15, 2009
eBay Prepares To Part With Skype
Popular Internet auction site eBay is set to spin off its Skype unit after stating that the Web telephone service does not fit with the rest of the company, Reuters reported.
The move comes as an indictment of former CEO Meg Whitman's acquisition strategy.
Sources familiar with the plan said eBay could seek substantially more than $2 billion for Skype, although other analysts doubted that it is worth that much in current markets.
In its biggest acquisition ever, eBay bought Skype in 2005 for $2.6 billion. But since that time executives have been evaluating whether the company was a good fit for the rest of eBay.
EBay CEO John Donahoe said in a statement on Tuesday: "We believe operating Skype as a stand-alone publicly traded company is the best path for maximizing its potential."
Many analysts like RBC's Stephen Ju believed it was apparent that Skype didn't fit into the rest of the business from day one.
"The book value of this asset is about $1.7 billion. It wouldn't surprise me if they would try to get something like $2 billion," he said.
Two sources familiar with the matter said eBay is open to a sale of Skype, although it only announced plans to spin Skype off into an independent public company.
Other sources said Niklas Zennstrom and Janus Friis, Skype's co-founders, are currently looking into several private equity firms to help them make a joint bid for the unit.
However, the sources stated that the buyout shops have not shown any keen interest so far, adding that specific proposals, including how much money to commit for any potential deal, were not discussed with all the private equity firms.
A report last week in The New York Times stated that Skype's co-founders were trying to raise $1 billion from private investors, and discussing one case in which eBay itself would put up the rest of the financing in the form of a seller's note to complete a deal worth more than $2 billion.
Alan Marks, a spokesman for eBay, said the company was not soliciting bids but pursuing an IPO, adding that market conditions will determine the timing of the deal, but that it would likely be completed by the first half of 2010.
A source close to eBay said the company hired investment backer Goldman Sachs to manage the IPO process.
Skype is an online phone service that allows international and local calls through the Web. Skype customers can call each other for free, a strategy that has helped to spread the service.
Skype posted revenue of $551 million in 2008.
Analysts say the U.S. IPO market remains slow, with most bankers only expecting a meaningful recovery in 2010.
Data from Thomson Reuters showed there have only been four IPOs since August and so far in 2009, IPOs measured in dollars are down 93 percent over the year ago period.
Commresearch analyst Gregory Lundberg believes market conditions currently would not support an IPO of Skype.
"2010 will be equally questionable unless the business completely changes course with the launch of the Blackberry and iPhone applications," he said.
Morningstar analyst Larry Witt said a Skype announcement has still been eagerly awaited.
Witt said eBay has had a lot of heat because of the acquisition for a while and that money could be reinvested into the core business or returned to investors.
He said eBay would love to get at least $1.7 billion "so they don't have to take another writedown, just to save face."
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