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 Did the company that specializes in auctions sell out its shareholders? After eBay Inc. (NASDAQ:EBAY) agreed Tuesday to sell 65% of its Skype Internet phone division for about $1.9 billion, many shareholders are asking why eBay decided to sell the company at a time when valuations are coming in low. EBay sold 65% of Skype to Silver Lake Partners; Andreessen Horowitz, a venture capital firm headed by Netscape co-founder Marc Andreessen; Index Ventures; and the Canada Pension Plan. (The Deal Pipeline subscribers can read the full story here.) However, eBay had originally planned to sell the company next year, according to peHUB. So why rush a deal? After all, eBay paid $2.6 billion for the company in 2005, so why is it selling the stake at a bargain basement price now when the total value of Skype is valued at $2.75 billion? GigaOm's Om Malik points out that it's management's fault for not having their act together: If you are an eBay shareholder it is time for your to get mad for the sheer incompetency of the management .... with the calling service on track to bring in $600 million in revenues in 2009 (though not sure how much profit it makes for eBay) the company is a likely candidate for a public offering when the IPO window opens, perhaps in 2010. That is 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 of course be the legal problems faced by Skype. These legal problems are a primary reason Skype's IPO dreams have turned into a nightmare. Motley Fool agrees that eBay should have held out for a better deal: In other words, Skype is sitting pretty in a blossoming market that
will grow exponentially for years. You could argue that eBay is getting
rid of Skype too early, or that the company had no business buying
Skype at all. Either way, eBay's timing is horrible. Wake me up when
Skype goes public, though. Meanwhile, the private capital firms will pay eBay $1.9 billion in cash when the transactions closes in the fourth quarter and cash in when the company goes public. That $1.9 billion cash could go a number a number of places, J.P. Morgan Chase & Co. (NYSE:JPM) analyst Imran Khan wrote in a note, according to Silicon Alley Insider. It may go into eBay's international cash balance, toward acquisitions or share buybacks. If repatriated, it could also be paid out as a dividend.
However, it's hard to think that eBay would be considering acquisitions when it seems to be whittling down to its core business. The question now is: What is eBay's strategy going forward as many other companies such as Facebook Inc. are revving up to compete in the online auction biz? - Maria Woehr eBay's Skype sale
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