Selling Skype: eBay Is Smarter This Time Around

by: Ashkan Karbasfrooshan

eBay (NASDAQ:EBAY) makes it official: here is the press release, here are some thoughts on the deal.


Q) They’re buying it at $2.75B – is that price tag too hefty?

Well, eBay overpaid for it back then, so while the business has grown the economic reality is less hype-ish and businesses are judged more on the P&L. But ultimately, in an M&A, it’s a combination of what a seller wants to let go of an asset and what the market will pay for it: eBay’s CEO had recently said that $2B was too low and since a private equity firm stepped in to make it happen, $2.75B seems logical given all of these variables.

Q) Why does this deal make any more sense than when Ebay bought Skype, (other than a lower price tag)

eBay made no sense but the notion that adding call options would increase sales and conversion was plausible. Ultimately, it wasn’t. The failed merger had more to do with culture and management than strategy, though. This can make sense if the right people step in. Skype, however, is no longer on the cutting edge of technology, in fact, they have fallen behind on some major opportunities they had.

Q) Are they angling for a potential IPO?

Yes, definitely.

Q) What about Ebay? How would unloading Skype affect Ebay stock (short and long term)?

The litigation involving Joltid was going to freeze the company from IPO-ing Skype or doing much to bring in more talent. Ultimately this is a distraction for eBay, which should focus on Paypal anyway.

Q) What’s the future for Skype?

Content sharing network + communications platform.

Q) eBay is keeping 35%, why?

It’s a tacit admission that eBay remains bullish on the future of Skype but is honest enough to say they’re not the best at maximizing value.

It’s also a sign that the market is not giving them the price they wanted for a full sale, so this way, they get some cash and keep some chips on the table.

I mean, people will forever think eBay was dumb in buying Skype, they don’t want to be known as twice as dumb for also selling it before someone else cashes big time.

Everything boils down to timing: a few years ago, as a publicly traded company, Doubleclick was in the gutter. A PE firm took them private for $1B and then a couple of years later, Google (NASDAQ:GOOG) bought them for $3.1B. By and large, this was the same company, but the mood of the market had changed.

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