eBay Sells Most Of Skype For $1.9 Billion

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By W. David Gardner
InformationWeek
September 1, 2009 11:55 AM
A move by eBay (NSDQ: EBAY) to drop its planned IPO and unload control of its Skype Technologies VoIP unit to a group of private investors for $1.9 billion would likely eliminate sticky litigation with Skype's founders Niklas Zennstrom and Janus Friis, who have been seeking to purchase Skype. eBay will retain a 35% equity position in Skype in the deal, which values Skype at $2.75 billion.

In an announcement Tuesday by lead investor Silver Lake Partners, buyers mentioned include Index Ventures, which was an original investor in Skype in 2004. Last month Index Ventures welcomed new partner Mike Volpi, who had been chief executive of Joost, a struggling online video venture founded by Zennstrom and Friis. "Skype is one of Europe's greatest startup success stories," said Volpi Tuesday. "In 2004, we recognized its potential as a global telecommunications leader and we've been captivated by the business since we first invested."
In addition to London-based Index Ventures, the investors acquiring Skype include Andreessen Horowitz, a venture capital firm led by Marc Andreessen, a co-founder of Netscape, and the Canada Pension Plan Investment Board (CPPIB.)
When eBay purchased Skype in 2005 for $2.6 billion and later considerations for a total estimated at $3.3 billion, the online auction company neglected to obtain rights to important underlying software for Skype, whose founders recently initiated litigation against eBay. The peer-to-peer software in question is owned by Joltid, a firm controlled by Skype's founders.
eBay had been planning to conduct an IPO for Skype but, eBay recently noted the seriousness of the Joltid litigation in a filing with the Securities and Exchange Commission. "Skype," eBay said in the SEC filing, "would be severely and adversely affected and the continued operation of Skype's business as currently conducted would likely not be possible."
An acquisition of Skype, of course, eliminates the necessity of conducting an IPO by eBay.
Last spring, reports surfaced that Zennstrom and Friis were talking with investors about acquiring Skype and reestablishing it as a standalone unit. eBay favored spinning off Skype -- its chief executive John Donahoe had said as much, noting that the VoIP unit didn't represent much synergy with eBay's main businesses.
Donahoe hailed the transaction in a statement Tuesday. "For eBay, this transaction allows us to unlock both immediate and long-term value while benefiting from talented partners to help Skype accelerate its growth momentum," he said. "There is no doubt in my mind that the talented players that make up this investment group will enable strong growth of Skype in the years to come."
After Zennstrom left eBay, he said eBay had paid too much for Skype in the first place.
Silver Lake observed that Skype had revenues of $551 million in 2008, representing a 44% increase over the previous year's revenues. eBay has projected Skype revenues to surpass $1 billion in 2011.
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