Ebay calls time on Skype venture

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Ebay on Tuesday agreed to unload a 65 per cent stake in its Skype internet calling service, bringing down the curtain on a deal that had come to be seen as the internet auction company’s biggest strategic mistake.

The sale to a group of private investors, in return for $1.9bn in cash and a $125m debt instrument, marks the reversal of an ambitious 2005 push into online communications that came to cloud the final years at the company of Meg Whitman, its former chief executive.

The transaction will cut loose one of the biggest and fastest-growing private internet businesses. With $551m of revenues last year and 405m registered users, Skype’s global reach has made it one of the best-known consumer brands, and its free computer-to-computer calls have had a disruptive effect on traditional telephone companies.

Ms Whitman bought Skype in the belief that it would grease the wheels of Ebay’s core online auctions business, making it easier for buyers and sellers to communicate.

But the planned integration failed to work and John Donahoe, who took over from Ms Whitman as Ebay chief early last year, told the Financial Times at the time that he would look to shed Skype if he could not find any greater strategic logic for keeping it.

Tuesday’s partial sale, which Ebay said valued the entire Skype business at $2.75bn, represents a better financial outcome for the company’s shareholders than had at one time seemed likely. Ebay paid $3.1bn for the business but later wrote down its value by $1.43bn. After receiving offers of only about $2bn earlier this year, Ebay instead said it would pursue an initial public offering for the business, though it continued to entertain offers from several potential buyers.

The investor group is led by Silver Lake, Silicon Valley’s most prominent technology-
focused private equity firm, and includes two venture capital firms, considered unusual for a deal of this kind. A group of banks led by JPMorgan Chase is putting up about $500m to back the deal, people familiar with the deal indicated.

One of the VC financiers, London-based Index Ventures, was an initial backer of Skype. The other, Andreessen Horowitz, was co-founded by Marc Andreessen, a founder of Netscape and a director of Ebay.

The sale comes despite an unresolved dispute over a piece of Skype’s technology that Ebay has warned could potentially force the internet calling service to be shut down. Niklas Zennstrom and Janus Friis, Skype’s founders, own rights to core technology in the voice-over-internet-protocol service, and the dispute is due to come to court in the UK next year.