Story from the Wall Street Journal
EBay Inc. said it plans to separate its Skype Internet-phone business through an initial public offering, bowing to investor demands to unload a popular service that didn't fit well with its core business.
The IPO plans signal eBay couldn't find buyers for the business at a price that it liked. A group of private-equity firms recently teamed up to back Skype's co-founders, Niklas Zennstrom and Janus Friis, in an attempt to buy back the business, according to people familiar with the matter.EBay, seeking to focus on its core businesses, will take the Internet-phone service public sometime over the next 14 months. Stacey Delo reports.
But the founders' offer fell on deaf ears, as it was well below the price at which eBay was willing to sell the business, these people said.
EBay declined to say how much it expects to raise by separating Skype, which had revenue of $551 million last year. EBay said it hopes to complete the IPO in the first half of 2010 and has hired Goldman Sachs Group to handle the offering. An eBay spokesman said the company plans to remain a shareholder after the IPO, but eventually will separate from Skype entirely.
The online-auction giant purchased Skype in 2005 for about $2.6 billion in cash and stock, on the premise that eBay buyers and sellers would use Skype's internet phone service to communicate. But two years later eBay took a $1.4 billion charge for Skype, reflecting the unit's shrinking value.
After John Donahoe became eBay's chief executive last year, he said Skype seemed to be a poor fit with the rest of the company. Shedding the business next year "will give Skype the focus and resources required to continue its growth and effectively compete," he said Tuesday.
The IPO market has been largely dormant since August, with just a handful of deals completed. Some bankers have said that they don't expect a meaningful pickup until the end of 2009 or early 2010, so scheduling a deal that far out could mean a better environment for a Skype IPO.
Christopher King, a telecom analyst with Stifel Nicolaus & Co., said investors who have been burned by other IPOs, like that of wireless broadband start-up Clearwire Corp. in 2007, might be hesitant to buy into Skype's offering.
"A standalone [Internet] telecom story would be a difficult sell for telecom investors in this environment," he said. "People are a bit skeptical of uncertain business models." He said Skype's name recognition is an asset, but said the company would likely end up with a valuation far less than the $2.6 billion eBay paid.
Skype uses a technology called voice over Internet protocol, which treats calls as data like email messages and routes them over the Internet, rather than a traditional phone network.
Skype's software, which can be downloaded free, allows users to call other Skype users on computers or certain cellphones for free. Skype users can also call land lines for a fee, typically 2.1 cents a minute, and conduct video calls. EBay says Skype has more than 400 million users.
Skype has an ongoing intellectual property dispute with its founders, who license a peer-to-peer technology to the company. An eBay spokesman said the company would resolve the dispute before an IPO.
Under Mr. Donahoe, eBay has moved away from the acquisition strategy of former chief executive Meg Whitman, and re-focused on its roots in e-commerce. On Monday, it also sold its stake in Internet company StumbleUpon back to its owners.
"Separating Skype will allow eBay to focus entirely on our two core growth engines -- e-commerce and online payments -- and deliver long-term value to our stockholders," said Mr. Donahoe.
