The New York Times reports that eBay is soon to sell Skype, and they are looking for a price north of $2bn (they bought Skype for $3.1bn in 2005). On what basis, we wonder. Given that Skype doesn't actually own the technology that its based on (the founders still own that and are busy suing Skype) its hard to see how such a price tag can be justified on c $600m revenues and minimal (if any) profits*
As
GigaOm notes:
That’s why the decision to sell the company at just over three times sales doesn’t make much sense to me. Unless, of course, eBay management is trying to use this deal to paper over the problems that continue to plague its core business of auctions. The other reason could be the legal problems faced by Skype. These legal problems are a primary reason Skype’s IPO dreams have turned into a nightmare.
As we reported earlier, Skype co-founders Zennstrom and Friis tried to buy the company back from eBay but were rebuffed. The duo own a company called JoltID, which has since then sued Skype, alleging that eBay over the use of its P2P technology, which is at the heart of the Skype service.
The sale is theoretically to Marc Andreessen’s new venture fund, Andreessen Horowitz, and the original Skype investors Index Ventures. Also according to The Times Silverlake Partners, a Silicon Valley-based private equity group, is said to be involved with the deal.
Looks like the typical PE deal - take over a distressed asset from a distressed company, tidy it up and throw it on the market 3 years later in better times for a tidy profit.
eBay paid way over the odds in the bubble years, and is now going to sell in the distressed times. I agree with
Pat Phelan, in that at a price tag $2bn plus I wouldn't be surprised if the founders were also involved in the deal, as that to me is the only way that the buyers could throw this company into another proifitable sale or IPO in a few years time - unless you believe VOIP is in for another major growth spurt, which I don't.
Update - El Reg says the actual deal is
65% of the company:
It’s official - eBay has offloaded a majority stake in Skype to a gaggle of investors in a deal that values the VoIP outfit at $2.75bn.
eBay keeps a 35 per cent stake in Skype. The online auction giant will get $1.9bn in cash
Slightly better news in that they get a share in any upside - one hopes the risks are similarly shared, and we wait with bated breath to hear about the lawsuit going forward...... but still, $ 2.75bn. Also, I wonder what the conditions in this deal are - that price almost paints the PE guys as dumb money, and they usually aren't. I'd be prepared to bet there are a few guarantees and indemnities in there.....
#Update 2 - nice analysis at
Bronte Media
The earn outs were not met and the company actually only paid $3.1bn. But also of note is that the firm only paid $1.8bn in cash and $1.3bn in eBay stock.
How does today’s announcement validate or invalidate the decision? Well the $2.75bn valuation means that eBay’s investment has a negative 6% internal rate of return (IRR). If the firm would have declined to buy Skype and instead parked the same amount of money in the S&P 500 they would have ‘earned’ a negative 10% IRR. So Skype has out-performed the broader stock market over the term of the investment.
But let’s dig deeper. eBay’s stock price was $38.62 on September 9, 2005 when the deal was struck. The stock is now $21.68. That means the company as a whole has declined at 25% per year since acquiring Skype. If anything, Skype has held up (more correctly Paypal and Skype to a smaller extent have held up) the great value destruction of eBay’s core marketplace.
Also it essentially means that on a cash basis eBay hasn’t spent a dime ($1.9bn back with the sale vs $1.3bn initially + $0.5bn earnout for the purchase) and that for the issuing of some over-priced stock in 2005 it now has 35% of a great asset in Skype.
Love the angle that compared to the Rest of Market, the Skype deal was value accretive despite itself.
*Apparently its making over $100m projected in 2009. Not clear if this is EBITDA or profit.
