Is eBay about to hang up on Skype?

As eBay parts ways with StumbleUpon, could internet telephony service Skype be the next to go?

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Last Updated: 31 Aug 2010

Skype founders Niklas Zennstrom and Jannus Friis are trying to buy back their business from eBay, according to this Saturday’s New York Times. The report suggested that the two entrepreneurs have teamed up with four private equity firms (KKR, Warburg Pincus, Providence and Elevation Partners) to put together a bid, while eBay itself was supposedly set to finance a big chunk of the deal. Given that eBay washed its hands of recommendation site StumbleUpon this weekend, it’s eminently plausible – and eBay has basically admitted that Skype is for sale. But it sounds like the two sides are still a long way apart on price…

The Skype deal has not been a happy one for eBay. The auction site bought the company for $2.6bn back in 2005, but has since admitted that it paid way over the odds – two years later it wrote down the value of the business by $1.4bn, which had to sting a bit. It’s not that Skype hasn’t flourished – the VoIP site has grown its subscriber base to over 400m people, and made $550m last year. But eBay has had little or no success in incorporating it into the rest of its business (unlike PayPal, for instance) and recently admitted there are ‘minimal synergies’ between the two. That was widely seen as an admission that it would flog Skype for the right price.

It’s a very similar story with StumbleUpon, the recommendation site that eBay bought for $75m two years ago. Again, the site has grown in popularity but failed to find any synergies with its new parent; this weekend its founders said they’d bought their company back, presumably for a fraction of the original sale price. If this does indicate a change of eBay’s strategy – selling off non-core businesses to concentrate on getting its auction mojo back – this could make a Skype sale more likely.

However, eBay clearly has no plans to give it away. According to the Times, Zennstrom and Friis (with the help of their deep-pocketed private equity chums) are willing to pay about $2bn for Skype – a pretty respectable offer, if the figures are accurate. But it sounds like eBay isn’t happy with the terms of the deal – perhaps not surprisingly, since it would apparently be required to contribute around $1bn of this total itself via a seller’s note. It’s embarrassing enough to admit that your acquisition strategy was misguided, without paying private equity firms to take a prize asset off your hands...



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