US: EBay slashes Skype deal price, founders step down

eBay cuts $1.2 billion from its acquisition price due to Skype's lackluster performance

The Straits Times
Tuesday, October 2, 2007

NEW YORK/SAN FRANCISCO --- EBAY said on Monday it would cut as much as US$1.2 billion (S$1.8 billion) off the US$4.3 billion potential price it agreed to pay for Web-based phone-calling service Skype two years ago.

The writedown on the value of the deal came as eBay said Skype co-founders Niklas Zennstrom and Janus Friis had resigned as executives, and marks a tacit admission of lacklustre returns from Skype since eBay acquired it two years ago.

EBay said in a United States regulatory filing on Monday it would pay Mr Zennstrom, Mr Friis and other Skype shareholders 375 million euros (S$789 million) and take a charge of US$1.4 billion against eBay's third-quarter results, due out later this month.

'I think this is a testament that the Skype franchise is not worth as much as eBay originally thought,' said Wall Street analyst Youssef Squali of brokerage Jeffries & Co.

Shares of eBay hit an 18-month closing high of US$39.66, up 1.6 per cent on Monday, reflecting the lower price the online auction leader is paying for Skype and the greater flexibility eBay may now have to put Skype on a new course, analysts said.

The stock is up more than 20 per cent since late August in anticipation of strong quarterly results.

'If you take Skype out of the equation, the rest of the eBay business seems to be doing great again,' Pacific Crest Securities analyst Steve Weinstein said. 'EBay management has found ways to re-accelerate the core (auctions) market. Lots of its businesses are doing extremely well.'

EBay's deal to acquire Skype was controversial with investors from the start. A key justification of the deal was eBay's hope to stoke growth in its core auction business, which has slowed in recent years, and by call-billing payment tie-ins between Skype and eBay's PayPal online payments service.

The returns to eBay on the Skype deal, the largest Internet transaction since the technology stock downturn of 2000, contrast sharply with the US$580 million Mr Rupert Murdoch paid to acquire MySpace two months ahead of the eBay-Skype deal.

For while Skype has failed to live up to expectations, generating US$90 million in revenue in the most recent quarter ended in June, Mr Murdoch recently said he would be surprised if market-leading social network MySpace failed to deliver US$1 billion over the course of the fiscal year ending June 2008.

Date Posted: 10/2/2007