Ebay to spin off Skype

Ebay has announced plans to spin off Skype, its online phone unit, with an initial public offering next year following the collapse of talks that would have sold Skype back to its founders.

The plan amounts to an admission by John Donahoe, Ebay’s chief executive, that Skype was ill-suited in Ebay’s portfolio. “It’s clear that Skype has limited synergies with Ebay and PayPal,” Mr Donahoe said.

With more than 405m registered users, fast-growing Skype is the largest international voice carrier. Skype reported $550m in sales last year, and at Ebay’s analyst day last month the company said it expected revenues to more than double by 2011 to at least $1bn.

Recent reports have suggested that Skype founders Niklas Zennstrom and Janus Friis were raising money to buy the company back from Ebay with the support of private equity firms. Ebay refused to comment on any offers but one person involved in earlier sale discussions said the Ebay board was split, with some members opposed to a sale.

Alan Marks, Ebay spokesman, said: “The board is supportive that an IPO is the best path to maximise the value of Skype.”

The spin-off would end a four-year partnership. Ebay bought Skype for $2.6bn in 2005 and later paid out an additional $500m, hoping the voice over internet protocol service would facilitate better communication between buyers and sellers on its core auction site. That never happened, and in 2007 Ebay wrote down the value of its investment by $1.43bn, or nearly half.

Announcing an IPO a year in advance is unusual, and comes as Ebay was seeking to deflect rumours that it was poised to sell Skype. “Clearly, they have bought some time,” said one person familiar with the company’s thinking. “This doesn’t tie their hands, and arguably it could add to the final valuation.”

In a public offering Skype could justify a valuation of more than $2.5bn, this person added, though that would depend on a recovery of the IPO market, which most experts expect to remain effectively shut for at least the rest of this year. Such a valuation could eventually prompt the buy-out funds that were trying to buy Skype to come back with a higher offer, a person close to Ebay said.

“I would be very surprised if Ebay can get an exit at anything close to what they paid,” said Sandeep Aggarwal, Collins Stewart analyst.

Goldman Sachs has been hired to manage the IPO.

Additional reporting by Richard Waters