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Web auctioneer eBay Inc. is off the hook for about $1 billion in payments on its acquisition of Skype Technologies SA, based on the performance of the Internet telephony unit. Meanwhile, Skype co-founder Niklas Zennström will step down as CEO but remain as a nonexecutive chairman.
When eBay agreed to buy Skype more than two years ago, the stated deal value looked more like an algebraic equation than a finite price tag. The San Jose, Calif., company said it would pay €2.1 billion ($2.6 billion), plus x. The variable was an additional payout of up to €1.2 billion based on user activity, profitability and other gauges of performance, potentially raising the value of the deal to $4.1 billion. On Monday, eBay said it has paid €375 million to settle the performance clause, bringing the final reckoning for Skype to $3.13 billion. If eBay flips Skype or sells more than 50% of the company by March 31, it will pay another $195 million. "It has not been any secret to investors that Skype has been growing very rapidly; it has more than 200 million users," said Rob Haley of Gabelli & Co. There is a catch, however. "It's not as profitable as eBay's other businesses," Haley said. The company's e-commerce platform, for instance, reported $561 million in second-quarter operating income. eBay's PayPal unit contributed $84 million of operating profit, while Skype pitched in $9 million. After deducting corporate expenses, eBay had about $457 million in total operating income, indicating Skype's relatively small role in eBay's financial picture. In its second quarter results, eBay conceded that results from "lower margin businesses" such as Skype and PayPal squeezed its operating margins. Skype's image was scuffed a bit over the summer. Updates to Microsoft Corp.'s Windows operating system in August caused a massive reboot by subscribers, flooding Skype's system and preventing subscribers from using the service for two days. When eBay and Skype announced the deal in September 2005, the valuation stunned many observers. Backed by firms such as Bessemer Venture Partners, Draper Fisher Jurvetson, Index Ventures and Mangrove Capital Partners, Skype had a vast base of global users who paid very little for the service. Its model was more akin to a Web community than a telecom. Rival voice-over-Internet-protocol provider Vonage Holdings Corp., by comparison, bills its users like a conventional telecom, with monthly invoices. The company's value has drastically delcined in recent years. The stock debuted at $17 per share in its May 2006 IPO, and on Monday, Oct. 1, traded at less than $1. EBay and Skype originally planned to measure Skype's performance in 2008 or the first half of 2009. A company spokesman could not be reached Monday, and it was unclear why the review was conducted this year. In the coming quarter, eBay said it will take charges for the full $530 million payment plus another $900 million. The company did not say whether the latter sum is related to Skype. Given the charges and other developments, Zennström's exit as CEO is no surprise. He and Skype co-founder Janus Friis are at work on another venture, a Web video company called Joost NV. The startup raised $45 million in May from companies such as Index Ventures, Sequoia Capital, Li Ka Shing Foundation, CBS Corp. and Viacom Inc. Shares of eBay gained more than 80 cents to about $39.86 on Monday, a gain of more than 2%.  Deal Video
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