EBAY PLANS to spin off its Skype unit, acknowledging that the web telephone service does not fit with the rest of the company, in an indictment of former chief executive Meg Whitman’s acquisition strategy.
EBay said it was planning an initial public offering for Skype by the first half of 2010, a move widely seen as putting a “for sale” sign on the unit to fetch potential buyers.
Two people familiar with eBay’s thinking said the online auction company could seek substantially more than $2 billion for Skype. But some analysts doubted that it could fetch so much in current markets. San Jose-based eBay bought Skype in 2005 for $2.6 billion, in what was its biggest ever acquisition. John Donahoe, who became eBay chief executive a year ago, has vowed to evaluate whether the telephone service was a good fit with the rest of the company, which includes web payments service PayPal along with its core auctions business.
“We believe operating Skype as a stand-alone publicly traded company is the best path for maximizing its potential,” Mr Donahoe said in a statement.
Many on Wall Street raised eyebrows when Ms Whitman purchased Skype, sceptical of the high price and eBay’s claims that its customer base of buyers and sellers would embrace web phone calls.
“That Skype didn’t fit into the rest of the business was apparent from day one,” said RBC analyst Stephen Ju.
“The book value of this asset is about $1.7 billion. It wouldn’t surprise me if they would try to get something like $2 billion,” he said.
That implies a roughly 10 times Ebitda (Earnings before interest, taxes, depreciation and amortisation) multiple based on Skype’s 2011 revenue target of $1 billion and its current operating margins of 20 per cent, he added.
Mr Ju noted it was hard to put a value on a Skype IPO given the uncertainty over the state of the market in 2010.
Although eBay announced plans to spin Skype off into an independent public company, two sources familiar with the matter said it is open to a sale of Skype.
Skype co-founders Niklas Zennstrom and Janus Friis have recently contacted several private equity firms, including Kohlberg, Kravis, Roberts Co, Providence Equity Partners and Elevation Partners, in an effort to team up and make a joint bid for the unit, people familiar with the matter said. But the buyout shops have not evinced keen interest so far, the sources said. Specific proposals, including how much money to commit for any potential deal, were not discussed with all the private equity firms, one of the sources said.
The New York Times reported last week that Skype’s co-founders were trying to raise $1 billion from private investors, and discussing one case in which eBay itself would put up the rest of the financing to complete a deal worth more than $2 billion. – (Reuters)
