EBay Agrees to Buy Skype For $2.6 Billion in Cash, Stock
By ALMAR LATOUR
Staff Reporter of THE WALL STREET JOURNAL
September 12, 2005 9:49 a.m.
"EBay Inc. agreed to acquire Internet-calling startup Skype International SA for roughly $2.6 billion in cash and stock, posing a new threat to phone companies and expanding the reach of the online-auction company.
Launched just two years ago, Skype allows its subscribers to talk to each other over personal computers for free, while the company also allows cut-rate, pre-paid voice calls to be made from PCs to regular telephones or cellphones.
Skype has signed up 52 million users so far, making it one of the fastest-growing online communities. Skype has roughly 200 employees.
For eBay, Skype can provide a new way to reach out to millions of potential customers. Skype could also bring a voice-component to online auctions.
To Skype, eBay can bring the investment needed to grow the company further and help it get the marketing muscle that will allow it to better take on more established telecommunications firms.
Voice has increasingly become an application that can be used like email and is offered not just by phone companies but also by video-game companies as well as Internet service providers such as Google and Yahoo. Traditional phone companies have seen their landline phone customers flee to competition from wireless, cable and Internet-calling startups.
The acquisition of Skype also provides a flashback to the Internet boom of the 1990s: In 2004, Skype's revenue was just $7 million, while in 2005 it estimates it will have $60 million in revenue.
Under the deal, eBay said it could pay up to an additional $1.5 billion, in 2008 or 2009, in performance-based incentives.
"The acquisition will strengthen eBay's global marketplace and payments platform, while opening several news lines of business and creating significant new monetization opportunities for the company," eBay said.
EBay, which has been seeking to enhance its core e-commerce business while venturing into a fast-growing segment of the communications field, has been expanding geographically but, besides a handful of small acquisitions, hasn't ventured much outside the online-auction business. The purchase of Skype represents a big step in a new direction, causing concern among many investors.
Since news of a potential deal surfaced last Thursday, market participants have questioned the strategic value of acquiring Skype, particularly for such a high price tag, and have expressed concern about the potential for dilution of the company's shares. EBay's shares fell a cumulative 4.5% the last two sessions, ending Friday at $38.62 on the Nasdaq Stock Market. The stock is down from near $60 at the start of the year.
EBay said the acquisition, which is expected to close in the fourth quarter, should be dilutive to pro forma and GAAP earnings-per-share in the fourth quarter by one cent and four cents, respectively. For all of 2006, the acquisition is expected to be dilutive by four and 12 cents, respectively, with break-even on a pro-forma basis likely by the fourth quarter of next year, eBay said in the release.
--Stephen Wisnefski and Desiree Hanford of Dow Jones Newswires contributed to this article.
