eBay Acquisitions and Investments

Including Skype for $2.6 Billion

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Sale of Skype unlocks both immediate and long-term value for eBay

eBay has announced it has sold Skype to investor group led by Silver Lake and includes Index Ventures, Andreessen Horowitz and the Canada Pension Plan (CPP) Investment Board. The deal is worth around $2.75billion however, eBay will retain a 35 percent equity stake in the VOIP service provider. The deal is made up of $1.9 billion cash, and a note for a further $125million and will be completed in the fourth quarter of 2009.

eBay Chief Executive John Donahoe has long admitted the innovative VOIP service had lost synergy with its core businesses, namely its auction site and payment solutions provider PayPal, and this marks the second major sell off by eBay within a year. The popular social bookmarking service StumbleUpon was also offloaded for an undisclosed sum after being acquired for $75million back in April 2007. An extremely cash rich eBay can now focus on expanding and diversifying its payments and auctions software.

Skype is in seemingly good hands. Mr. Andreessen of Andreessen Horowitz is on eBay’s board of directors and the other firms involved have a healthy record with acquiring and investing in technology-based business. eBay will hope that the wealth of experience now behind Skype will give the company an accelerated return on its investment.

The sale of Skype still raises some question regarding the technology behind the service. Joltid Lts had originally sold Skype to eBay in 2005 but retained the rights to the technology behind the service. There has been an ongoing dispute after Skype's founders accused eBay of violating its license terms.

There had long been rumors that Skype's founders were going to buy back the service. Until today many thought Joltid Ltd may be part of the consortium buying the VOIP service. Donahoe has clarified that Skype's founder are not a part of the deal and have not yet agreed to drop the legal claim against eBay. An eBay spokesman has stated the eBay has agreed to pay 50 percent of the cost of any future fee payable regarding the legal dispute with Joltid Ltd. eBay also stated they are confident in their position.

One solution for eBay and Skype's new owners would be to switch to a SIP based architecture to avoid the technicalities of the licensing issue. But this would mean convincing Skype's 400 million+ users to change to the new service and upgrade their existing hardware. A daunting task no matter how much money you have. Its likely the dispute will only end when Joltid get what they want - a piece of the company they once owned.

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eBay Acquisitions and Investments

Sale of Skype unlocks both immediate and long-term value for eBay

Skype's Life at eBay

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