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Business News

EBay to spin off internet phone company Skype

EBay, the internet auction site, is to spin off Skype, the internet phone company it bought four years ago in one of the technology sector's most mystifying acquisitions.

The announcement last night that it was planning an initial public offering of Skype shares next year came after reports that the company had rejected a low-ball offer from Skype's founders, who were considering buying it back.

"Skype is a great stand-alone business with strong fundamentals and accelerating momentum," said eBay's chief executive, John Donahoe. "But it's clear that Skype has limited synergies with eBay and PayPal. We believe operating Skype as a stand-alone publicly traded company is the best path for maximising its potential."

The auction site bought Skype in 2005 for $2.6bn (£1.75bn), 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 by $900m.

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.

The Scandinavian duo Niklas Zennstrom and Janus Friis, who founded Skype in 2002, have approached eBay about buying the business back. A consortium of private equity firms, including the U2 frontman Bono's Elevation Partners, offered the pair $1bn to back a bid, but eBay is believed to have rejected the offer.