eBay's in No Rush to Spin Off Skype

May.31.09 | About: eBay Inc. (EBAY)

eBay (NASDAQ:EBAY) is in no hurry to spin off Skype. And why should they be? While they may have made a mistake in the initial acquisition (we won't commit to a view on this here), they are not in dire need of cash. So why spin-off a growing internet company, whose valuation is based on future projections rather than current high cash flow, into a weak market environment where people are discounting future projections heavily? My view here is: no rush. The money has been paid, whether it was too much or not. Let the business grow, and if market valuations improve substantially, then spin it off if you like. But I don't see why there should be any rush to do it anytime soon. If I owned Skype, and had overpaid, I wouldn't be in any rush to sell today.

Many observers had been waiting a long time for eBay Inc. to announce a spinoff of its voice-over-Internet-protocol phone service unit Skype. After all, it was clear that the online auctioneer was having a tough time achieving the integration envisioned when it paid $2.6 billion for the company in 2005, and eBay execs had been hinting for months that they were considering various options for the unit.

So when eBay chief executive John Donahoe, citing "limited synergies," announced last month that the company would spin off Skype via an IPO in the first half of 2010, it really came as no surprise. But that appears to be a very soft deadline now...

"Skype is now worth more than it was a year ago, and will be worth more a year from now than it currently is," wrote Bernstein analyst Jeffrey Lindsay in a Thursday research note.

Disclosure: No direct exposure to EBAY.