eBay to sell 65pc of Skype in deal that values VoIP firm at US$2.75bn

2 Sep 2009

Online auction giant eBay has signed a ‘definitive agreement’ to sell 65pc of voice over Internet (VoIP) telecoms player Skype for US$1.9bn.

The move comes three years after eBay bought Skype for a total sum of US$3.1bn if payments to founders are included.

The buyer, who will control an approximately 65 percent stake, is an investor group led by Silver Lake and includes Index Ventures, Andreessen Horowitz and the Canada Pension Plan (CPP) Investment Board.

eBay is expected to receive approximately $1.9 billion in cash upon the completion of the sale and a note from the buyer in the principal amount of $125 million.

The company will retain an approximately 35pc equity investment in Skype.

The transaction, which is not subject to a financing condition, is expected to close in the fourth quarter of 2009.

“This is a great deal, unlocking both immediate and long-term value for eBay and tremendous potential for Skype,” said eBay president and CEO John Donahoe.

“We’ve acted decisively on a deal that delivers a high valuation, gives us significant cash up-front and lets us retain a meaningful minority stake with talented partners. Skype is a strong standalone business, but it does not have synergies with our e-commerce and online payments businesses.

“As a separate company, we believe that Skype will have the focus required to compete effectively in online voice and video communications and accelerate its growth momentum.

“This deal achieves our goal of delivering short- and long-term value to eBay and its stockholders, without the possible delays and market risk of an IPO,” Donahoe said. “Selling Skype now at this great valuation, while retaining an equity stake, makes sense for the company. And it allows us to focus all of our energies on the opportunities in front of PayPal and eBay,” Donahoe said.

In April 2009, eBay announced plans to separate Skype from the company, beginning with an IPO in 2010. The decision followed a year-long review of Skype within eBay’s portfolio. As it prepared for an IPO, the company said it would consider bids for Skype that offered an attractive valuation.

Donahoe said the deal offered by the investor group achieved that.

“Skype is an innovative, next-generation company that has changed how people and businesses communicate with each other,” Egon Durban, managing director at Silver Lake said.

“This transaction benefits all parties involved and will allow Skype the opportunity to accelerate the growth of its business by harnessing the deep technological and company development expertise that resides within the investor group. Josh Silverman has done a strong job leading the company and we look forward to working with Josh and his team to grow the Skype franchise,” Durban added.

eBay said that Skype CEO Josh Silverman has driven strong momentum while building a new management team and delivering a series of Skype innovations such as software upgrades with dramatically improved video and calling quality, the widely popular Skype iPhone app and mobile partnerships with companies such as Nokia and Hutchison.

In 2008, Skype generated revenues of US$551 million, a 44 percent increase compared to 2007. Total eBay Inc. revenues for 2008 were US$8.5 billion. Registered Skype users reached 405m by the end of 2008, a 47pc increase from 2007.

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years