Partial sale of Skype confirmed

Stuart Corner
Wednesday, 02 September 2009 04:47

IT Industry - Strategy

eBay is to Sell 65 percent of Skype for approximately $US1.9 billion in cash to an investor group led by Silver Lake and which includes Index Ventures, Andreessen Horowitz (a recently launched venture capital firm led by Netscape founder Marc Andreessen and Ben Horowitz) and the Canada Pension Plan (CPP) Investment Board.


The deal, which had been expected following strong romours yesterday, values Skype at $US2.75 billion, 30 percent more than the $US2.1 billion eBay paid in 2005. JP Morgan, Barclays and RBC Capital Markets advised Slilver Lake and its investor group and have committed to provide the financing necessary to complete the transaction. eBay will loan the buyers $US125 million.

eBay president and CEO, John Donahoe, said: "This is a great deal, unlocking both immediate and long-term value for eBay and tremendous potential for Skype ... Skype is a strong standalone business, but it does not have synergies with our e-commerce and online payments businesses. 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."

Silver Lake is the co-owner (with TPG) of Avaya (and Avaya is the lead bidder to acquire Nortel's enterprise communications business). This has led to speculation that Silver Lake could develop a relationship between Avaya and Skype, enabling Avaya's customer base to leverage free Skype calling services. As one blogger observed "There could certainly be more synergy between Avaya and Skype than eBay and Skype exhibited during the past few years, and this is something that warrants watching in the future."

eBay claims that the Skype business has strengthened considerably since early 2008 when Donahoe was named eBay's CEO and hired Josh Silverman to lead Skype. "Silverman has driven strong momentum while building a new management team and delivering a series of Skype innovations such as software upgrades with dramatically improved video and calling quality, the widely popular Skype iPhone app and mobile partnerships with companies such as Nokia and Hutchison."

In 2008, Skype generated revenues of $US551 million, a 44 percent increase on 2007, but a small amount compared to eBay's 2008 revenues of $US8.5 billion. Registered Skype users reached 405 million by the end of 2008, a 47 percent increase from 2007. Skype claims to still be attracting "hundreds of thousands of new users each week."


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