Tech Con made mention of eBay Inc.’s new lending agreement with Wells Fargo Bank NA last week that increases its credit agreement from $1 billion to $2 billion (though we missed the fine print that the deal also includes an additional option for another $1 billion). Now, discussion has turned to just what the online auction giant could do with the extra cash.
In a research report put out on Monday, Stifel, Nicolaus & Co. analyst Scott Devitt speculates that eBay is positioning itself “for a possible material event regarding its capital structure or a mostly cash-funded acquisition.”
Though Devitt acknowledges he doesn't know of any M&A negotiations or discussions with any parties, he mentions IAC/InterActiveCorp (without its Home Shopping Network), strategic deals in the online payments area or “a more significant alignment with search laggard Yahoo! [Inc.]”
Devitt also points out that eBay could repurchase 18% of its equity over the next two years with its existing cash, free cash flow and the assistance of the credit facility, all without the assumption of net debt. While that scenario could still play out, he writes that an acquisition “that would allow eBay to marry distribution with content is always a possibility.”
Jefferies & Co. analyst Youssef Squali also weighed in on the modified credit agreement, but feels that eBay management “is actively considering a recapitalization of the business” to boost shareholder value. Among the possible options he mentions are a one-time cash dividend payoff of as much as $5 billion, or an annual or quarterly dividend that can be funded through eBay’s free cash flows (forecast at $2.3 billion in 2007 and $3 billion in 2008).
He also expects the company to to re-accelerate its top-line growth through M&A. Though eBay has been active in acquiring companies of late, Squali notes that other than its $2.6 billion acquisition of Skype in 2005, its purchases have been relatively small. —David Shabelman
See Aug. 3 blog post from Tech Confidential
See Jan. 12 story from TheDeal.com
Tags: ebay, skype, m&a, mergers
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