eBay Seeks a Stake in Gmarket

Shares of Gmarket Inc. (GMKT) closed up 14% at $25.36 on news that eBay Inc. (EBAY) aims to buy a minority stake in the Korean online retailer and auction site. eBay said the company was in discussions with South Korean Web-based retailer Interpark Corp. and its chairman, Ki Hyung Lee to buy their stakes in Gmarket. Together, Interpark and Lee own 36.6% of Gmarket.

An eBay spokesman confirmed the companies are asking for approval from the Korea Free Trade Commission to buy the stake. In a statement, the company said none of the parties intends to comment further about the matter until they enter into a definitive agreement.

Gmarket went public in June of 2006 at $15.25 a share and traded as high as $29.20 in October of 2007.

In a research report on the news, Stifel Nicolaus analyst Scott Devitt indicates eBay's earlier attempts to buy a piece of Gmarket ran into regulatory constraints. But he adds that an acquisition of the minority stake could be a precursor to a complete takeover. He speculates that a consolidation of eBay's own operations in Korea and Gmarket could come via a full acquisition or through eBay taking a minority stake, rolling eBay Korea into Gmarket for a greater minority stake and allowing Gmarket to run the combined operations while remaining independent but significantly owned by eBay.

Devitt said a full-out acquisition of Gmarket could be in the mid-$30 per share range, though the purchase of a minority position would come around current prices. Devitt says Gmarket's economics have been hampered by a competitive environment, but it has grown from a company with a low double digit share of the Korean market into the low 20% range since eBay's acquisition of Internet Auction Company in 2001.

Yahoo! Inc. (YHOO) owns a 10% stake in Gmarket as a result of a $60 million investment of the company in 2006, but the company has come under pressure to sell its Asian assets.