Tuesday, September 01, 2009

(BN) EBay Will Sell Skype Stake to Silver Lake-Led Group for About $2 Billion

Bloomberg News, sent from my iPhone.

EBay to Sell Skype Stake to Group Led by Silver Lake

Sept. 1 (Bloomberg) -- EBay Inc. agreed to sell 65 percent 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 percent of the business. The sale, this year's biggest private-equity 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. His predecessor bought Skype for $2.6 billion in 2005 and wrote down its value a year later. Private investors will probably push Skype beyond the consumer market, said Vanessa Alvarez, a Frost & Sullivan Inc. analyst in Boston.

"They've really been making an initiative to move into the business space," Alvarez said. "That's the next step for this market."

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 bought it; and Canada Pension Plan Investment Board, which invested $300 million. The others didn't disclose how much they paid.

EBay, based in San Jose, California, fell 46 cents, or 2.1 percent, to $21.68 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has gained 55 percent this year.

Better Than IPO

Selling a stake in Skype is a better option than holding an IPO because it lets both companies focus on their main businesses, Donahoe said today in an interview.

Skype 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.

The service was founded in 2002 by Niklas Zennstrom and Janus Friis, creators of the Kazaa file-sharing software. EBay bought the company three years later because then-CEO Meg Whitman hoped that buyers and sellers on the auction site would use the service to talk to each other about expensive items.

The founders 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.

'No Synergies'

Even as Skype grew, EBay didn't integrate the service into its e-commerce site. The company wrote down Skype's value to $1.2 billion in 2006.

"It has no synergies with the business," said Jeffrey Lindsay, an analyst at Sanford C. Bernstein & Co. in New York. "Investors hated it from the minute it happened."

EBay announced plans in April an IPO of Skype, scheduled for the first half of 2010. Donahoe said Skype's value in an IPO may be more than $2 billion. Investors might have valued Skype at $2.5 billion at most in an IPO, Lindsay said.

"Now it's like a bird in hand," said Lindsay, who projects EBay's shares will perform in line with the market and doesn't own any.

EBay may use the proceeds for stock buybacks and small acquisitions, Lindsay said. The company is focused on improving its Internet-retail operations to stem customer defections to Amazon.com Inc. EBay bought South Korea's Gmarket Inc. for $1.2 billion this year to expand its online-auctioneering business.

Skype's Growth

Skype's revenue grew 25 percent 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. In March, Skype started a service for business users, seeking growth beyond consumers.

The investor group's expertise in technology and corporate development will accelerate Skype's growth, 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.

The firm's investments include SunGard Data Systems Inc., Avago Technologies Ltd. and Avaya Inc. Semiconductor maker Avago, which Silver Lake bought with New York-based KKR & Co. LP in 2005, raised $745 million in an IPO last month.

Today's deal is the biggest private-equity transaction in 2009, ahead of KKR's $1.8 billion purchase of Anheuser-Busch InBev NV's South Korean beer unit, according to Bloomberg data.

To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net Katie Hoffmann in New York at khoffmann4@bloomberg.net

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