EBay escapes with small profit from Skype venture

Auction site sells internet telephone company in deal that values it at $2.75bn
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The Independent Online

EBay, the online auction site, has eked out a small profit on Skype, the internet phone company it bought for $2.6bn (£1.6bn) four years ago and which it agreed to sell to a consortium of venture capitalists yesterday.

The sale of a 65 per cent controlling stake in Skype values the company at $2.75bn, and ends a series of flip-flops over the company's future. Earlier this year, eBay's chief executive, John Donahoe, said he had decided to launch an initial public offering of Skype, after apparently rejecting a low-ball takeover offer from Skype's founders.

The new owners are led by the Silicon Valley venture capital group Silver Lake Partners. They include the founder of Netscape, and London-based Index Ventures, which previously made a tidy profit on a 2004 investment in Skype before the acquisition by eBay.

"We've acted decisively on a deal that delivers a high valuation, gives us significant cash up-front and lets us retain a meaningful minority stake with talented partners," Mr Donahoe. "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."

The buyers will give eBay $1.9bn in cash and a note for $125m. The valuation this puts on Skype means that eBay can claim to have made a small profit on one of the most mystifying acquisitions in the technology industry.

The auction site bought Skype in 2005 for $2.6bn, plus more than half a billion dollars in additional performance fees, in a deal that left analysts asking how it fitted with eBay's auction business or the PayPal electronic payment processing operation that is also part of the company. The former eBay boss Meg Whitman said at the time that buyers and sellers on the auction site could use Skype to talk to each other, but the idea does not seem to have taken off. In 2007, eBay had to write down the value of the business in its accounts.

In 2008, Skype generated revenues of $551m, up 44 per cent from 2007, and more than 400 million people have signed up to use it. The company has also launched an application for the iPhone which was downloaded by 1 million people in the first 36 hours.

For Neil Rimer and Giuseppe Zocco, the founders of Index Ventures, which has more than €1bn (£882m) under management, joining the consortium with Silver Lake is a return to the scene of an earlier success. "Index has always believed that Skype's technology and the teams in Estonia, Luxembourg and London building that technology are second to none," their spokesperson said yesterday.

The consortium includes Andreessen Horowitz, the new $300m fund set up by the web browser pioneer Marc Andreessen and the Canadian Pension Plan Investment Board.

Egon Durban, a managing director at Silver Lake, described Skype as an "innovative, next-generation company that has changed how people and businesses communicate with each other", and said he expected it to prosper in a time of technological change in telephony.