Ebay Sells Off Majority of Skype for $1.9 Billion

Ebay Sells Off Majority of Skype for $1.9 Billion

it’s been a long time coming, but online auction giant Ebay has inked a deal (PDF) to sell of 65 percent of its VoIP operation Skype for $1.9 billion in cash. The buyers are a group of technology investment houses led by Silver Lake, with investors including Andreesen Horowitz (a new venture capital firm from Netscape co-founder Marc Andreessen), Index Ventures, and the Canada Pension Plan Investment Board. The deal values Skype at about $2.75 billion; eBay will retain a 35 percent share of the company.

“This is a great deal, unlocking both immediate and long term value for eBay and tremendous potential for Skype,” said eBay President and CEO John Donahoe, in a statement. “We’ve acted decisively on a deal that delivers a high valuation, gives us significant cash up front, and lets us retain a meaningful minority stake with talented partners.”

The deal lets eBay shed operations and management of the Skype business—which had never been a very good fit with the company—and focus its energies on both its online auction business and its PayPal online payment processing system.

eBay bought Skype back in 2005 for a whopping $4.1 billion; at the time, the company planned to continue operating Skype as its own business, but also integrated Skype capabilities into its online auction business, enabling buyers to contact sellers via voice and video and, in theory, put a human face on the otherwise largely anonymous world of eBay. However, the businesses weren’t a good fit; in 2007 eBay admitted it overpaid for Skype, and earlier this year announced plans to spin Skype back off into a separate company. The new deal with Silver Lake represents a bit of a compromise: eBay gets cash immediately for its coffers, and if the new operators are able to turn Skype into a massive revenue-generating machine, eBay will reap some of the financial benefits of that via the 35 percent stake it plans to retain. eBay is also engaged in litigation over the peer-to-peer technology at the heart of Skype; Skype’s original founders are accusing eBay of breaching their license agreement to the technology.

The deal is expected to close in the fourth quarter of 2009.

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