eBay Will Sell Majority Stake in Skype to Private Investors

eBay plans to sell 65 percent of its stake in Skype, the popular Internet-based calling service, to a group of private investors that include Marc Andreessen's venture-capital firm. Although the acquisition of Skype by eBay appeared promising, a lawsuit and other issues prevented the original deal from reaching its full potential, despite robust revenue and user numbers. Analysts suggest that the private investor group may have big plans for Skype.

Four years after acquiring Skype Technologies, eBay plans to resell a majority share of the Internet-based calling service to a team of private investors for $1.9 billion in cash.
The investor group, headed by Silver Lake Partners and including Marc Andreessen's venture-capital firm Andreessen Horowitz, will own 65 percent of Skype, with eBay retaining the remaining share. The purchase price includes a $125 million loan from eBay.
The deal is expected to close in the fourth quarter. At the end of 2008, the number of registered Skype users had reached 405 million, while the service's revenues had grown 44 percent from 2007, according to a joint statement released by both companies on Sept. 1.
"Skype is a strong stand-alone business, but it does not have synergies with our e-commerce and online payments business," John Donahoe, president and CEO of eBay, said in the Sept. 1 statement. "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.
"Selling Skype now at this great valuation, while retaining an equity stake, makes sense for the company," Donahoe added. "And it allows us to focus all of our energies on the opportunities in front of PayPal and eBay."
eBay originally paid $2.1 billion for Skype in 2005, but the deal did not produce the hoped-for innovations in the use of online communications for auctions. The current deal with the private investor group could unlock some of Skype's potential.
"I think it's probably a good-news story for both Skype and eBay; in these economic times, knowing how an IPO [initial public offering] is going to go is an interesting reading of the tea leaves," Elroy Jopling, an analyst with Gartner, said in an interview with eWEEK. "With Skype, they were in purgatory for a long time in eBay's lineup, but now they've begun to foray into a number of different areas."
The problem with the original deal, Jopling said, was an inability to figure out how Skype's communication offerings could fit into eBay's auction model. "There wasn't an easy fit that way. It looks nice on a PowerPoint slide, but when you get down to reality, it doesn't quite work."
Jopling added, "eBay made a bad decision, but every business makes them. It's a question from that point of how you divest yourself effectively of it, and eBay did a good job of that."
In past months, Skype had also presented some substantial problems for its online-auction parent, mostly centering on a software license lawsuit with Joltid, a small company owned by Skype co-founders Niklas Zennstrom and Janus Friis.
Skype Technologies filed a lawsuit against Joltid in English High Court back in March, seeking to protect its license to use peer-to-peer VOIP (voice over IP) software developed by the smaller company. Joltid then retaliated with a countersuit alleging that Skype had infringed on its copyright by integrating Joltid's software source code. The proceedings had the potential to interfere with eBay's then-stated plans to spin out Skype in an IPO scheduled for 2010. Any public offering has obviously been shelved for the time being.
"This investment shows a surprising interest in Skype, which has been languishing under eBay despite the fact it is one of the most powerful brands in the VOIP space," Rob Enderle, an analyst with the Enderle Group, said in an e-mail interview with eWEEK. "To the right people-and Andreessen's team may be the right people-this could be vastly more valuable."
The deal, Enderle continued, "will position [Skype] against Google Voice and pit the two efforts against each other, which suggests there will be more to come with this deal. We are likely only seeing the beginning of this strategy and it may be a year or two before we see it entirely fleshed out."