eBay has announced a deal to buy Skype Technologies for approximately $US2.6 billion in up-front cash ($US1.3b) and eBay stock, plus potential performance-based consideration that could increase the total price by another $US1.5 billion, payable in cash or eBay stock, at eBay's discretion.

The Financial Times reported that there was strong competition from, among others, News Corporation and Yahoo!.

eBay says the acquisition will "strengthen its global marketplace and payments platform, while opening several new lines of business and creating significant new monetisation opportunities for the company."
One obvious and immediate application will be to open a direct line of communications between eBay buyers and eBay sellers.

eBay said in its announcement: "Buyers will gain an easy way to talk to sellers quickly and get the information they need to buy, and sellers can more easily build relationships with customers and close sales. As a result, Skype can increase the velocity of trade on eBay, especially in categories that require more involved communications such as used cars, business and industrial equipment, and high-end collectibles." eBay also envisages pay-per-call communications, "especially for those sectors that depend on a lead-generation model such as personal (the mind boggles!) and business services, travel, new cars, and real estate."

It suggests that "Skype can help expand the eBay and PayPal global footprint by providing buyers and sellers in emerging ecommerce markets, such as China, India, and Russia, with a more personal way to communicate online. And consumers in markets where eBay currently has a limited presence, such as Japan and Scandinavia, can learn about eBay and PayPal through Skype. Skype can also help streamline cross-border trading and communications."

Skype generated approximately $US7 million in revenues in 2004, and the company anticipates that it will generate an estimated $US60 million in revenues in 2005 and more than $US200 million in 2006. On a long-term basis, eBay expects Skype operating margins could be in the range of 20 percent to 25 percent.
eBay says that Skype shareholders were offered several cash and stock options. Shareholders representing approximately 40 percent of the Skype shares chose to receive a single payment in cash and eBay stock at the close of the transaction. The remainder chose to receive a reduced up-front payment in cash and eBay stock at the close plus potential future earn-out payments based on performance-based goals for active users, gross profit and revenue.

The acquisition is expected to close in the fourth quarter of 2005, but eBay has lost no time in trumpeting the deal: the home page of its main trading site (www.ebay.com) carries a Skype logo and the legend "eBay's excited to welcome Skype: writ large.

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