EBay Chief Executive Officer John Donahoe says there's no downside to his company's plan to sell most of its Skype division. "EBay was able to have its cake and eat it, too," he says.
So far, he's not getting much argument. In a deal announced Sept. 1, eBay will sell a controlling share of the Internet-calling service to a group of investors led by private equity firm Silver Lake for $1.9 billion in cash and $125 million in short-term debt. The sale values Skype at $2.75 billion, not far below the price eBay paid for the business in 2005, and higher than the value recently placed on Skype by some Wall Street analysts.
At the same time, eBay retains a 35 percent stake in a high-growth business that could fare even better under private ownership. "If Skype was worth a lot more, eBay has one-third of that upside," says Collins Stewart analyst Sandeep Aggarwal. Along with Silver Lake, Skype's new backers include some of the top names in technology investing, including Geneva-based Index Ventures, one of Skype's first investors. Andreessen Horowitz, a venture capital firm launched this year by eBay board member Marc Andreessen, contributed $50 million, or one-sixth of its total fund.
Skype has been a sore subject for eBay investors almost since former CEO Meg Whitman bought the company in 2005 for $2.6 billion plus $500 million in bonuses paid later. Whitman's hope that buyers and sellers would use Skype as a communications  channel never came to fruition. Analysts say that even as the unit steadily grew its revenue and user base, it also kept management distracted from growing the shopping business that makes up most of eBay's sales.
Skype Buyers Have 'No Plans' for IPO
"I think [buying Skype] was an intelligent risk to take," says Donahoe, who, since taking the helm in early 2008, had pledged to wring more value from the telephony business -- or sell it. In April, eBay announced plans to spin the company off in a 2010 public offering.
Skype is still a candidate for a public offering, but its buyers are in no hurry. "We have no plans" for an initial public offering, says Egon Durban, managing director of Silver Lake. Instead, the firm and its partners plan to invest in Skype and expand its reach and value. Durban sees several "peripheral opportunities" that might include partnerships to make the service available on more mobile phones. Already, Skype offers mobile apps for Apple iPhones and Research In Motion BlackBerry devices, and has a partnership with a Britain-based telecom service called "3," owned by Hutchison Whampoa. (continued...)
© 2009 Business Week Online under contract with MarketWatch. All rights reserved.
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