EBay reaches deal to sell Skype

IDG News Service -

EBay has reached an agreement to sell a 65% stake in its Skype Internet telephony, video conferencing and instant messaging unit for $1.9 billion in cash to an investor group led by Silver Lake.

In addition, eBay will receive a note in the principal amount of $125 million from the buyers, which also include Index Ventures, Andreessen Horowitz and the Canada Pension Plan Investment Board, the company said Tuesday.

The deal, which isn't subject to financing conditions and is expected to close in this year's fourth quarter, puts Skype's value at $2.75 billion.

In April, eBay announced its intention to spin off Skype, saying the Internet telephony unit didn't mesh with eBay's two core businesses: its e-commerce marketplace and its PayPal online payment division.

At the time, eBay said it planned to launch an initial public offering (IPO) for Skype, probably in the first half of 2010, but that the nature of the spin-off and its timing could vary depending on market conditions.

The deal struck with Silver Lake and the other investors is a better alternative, eBay President and CEO John Donahoe said in a statement. "This deal achieves our goal of delivering short- and long-term value to eBay and its stockholders, without the possible delays and market risk of an IPO," Donahoe said. "Selling Skype now at this great valuation, while retaining an equity stake, makes sense for the company."

By giving up majority ownership of Skype, eBay fades into the background of Skype's future. This isn't what eBay had in mind when it paid $2.6 billion to buy Skype in October 2005. Back then, the plan was to mesh Skype with the eBay marketplace to boost communications and commerce between merchants and buyers. That vision never became a reality, and two years after the acquisition, eBay wrote down Skype's value by $1.4 billion.

In order to realize its potential for growth, Skype needs to be an independent business, according to Donahoe. "As a separate company, we believe that Skype will have the focus required to compete effectively in online voice and video communications and accelerate its growth momentum," Donahoe said in the statement.

Egon Durban, Silver Lake's managing director, said that the new majority owners, with their technological and business development experience, will help Skype accelerate its growth.

Silver Lake is an investment firm that focuses on the technology field. The list of companies it invests or has invested in includes Ameritrade, Business Objects, Travelocity and Seagate Technology. Index Ventures invests in technology, bio-technology and clean technology and its current and past investments include Playfish, Weatherbill, MySQL and Last.fm. It was an original backer and owner of Skype. Andreessen Horowitz was created in June of this year by former Netscape wonderboy Marc Andreessen and Ben Horowitz.