September 9, 2005 3:00 am
Ebay, the online auction company, is understood to be in early but "active" talks to acquire Skype, the European internet telephony provider. It is thought the transaction could be valued at between $2bn and $3bn.
Ebay's interest in buying the privately-held company, which allows users to make free calls over the internet is "real and active", said people close to the talks.
However, shares in eBay fell 3.4 per cent to $30.09 at lunchtime yesterday as investors questioned the wisdom of the move.
Skype, which is headquartered in Luxembourg but run out of London, is understood to have hired Morgan Stanley to advise it on strategic options, including a sale, a stock market float, or another form of capitalraising.
A number of internet and media companies, including News Corporation, Google, and Yahoo, have had early talks with the company, but none of these have progressed further.
One of the problems has been that Skype is difficult to value. People close to the discussions have suggested that the company's founders, Niklas Zennstrom and Janus Friis, who also founded controversial music-swapping site Kazaa, have themselves had difficulty agreeing on what the company is worth.
Skype has more than 50m customers, but only 2m of these pay for services. Skype calls from one computer to another are entirely free, but the company charges for calls to mobile phones and landlines.
Analysts estimate that the company receives about €20-€30 a year from each paying customer. It also receives a share of revenues from the sale of headsets and telephone handsets that customers need to make calls on their computer. It may also get some revenues from partnership deals with internet portals such as Tom.com in China. Together, these are estimated to give the company annual revenues of €50m-€70m ($62m-$87m).
Analysts say the value of Skype is not in the annual sales, but in its large customer community and its technology, which could be harnessed by a company like eBay.
Ebay could, for example, add telephone bidding services to its auction site, or use some of Skype's file transfer technology to start selling online content, such as music or videos, through its site in addition to physical goods. Nevertheless, many are sceptical of whether Skype would add $3bn worth of value to eBay.
James Enck, telecoms analyst at Daiwa Securities, said: "I can see how Skype might fit in - eBay is trying to present itself as a community of inter-connected users and Skype would offer a way for it to extend that.
"But $3bn seems pretty steep. With an annual run rate of €50m to €70m, that is a whacking sales multiple."
A number of internet and technology companies have recently moved into providing voice calls over internet lines. Last month Google, the internet search company, introduced software that allows people to send instant messages and make voice calls on their computers. The same week, Microsoft bought Teleo, an internet telephony company.
Lars Godell, telecoms analyst at Forrester, said acquiring Skype could be useful for a company that wanted to move quickly into the arena of internet telephony.
"For anyone who hasn't got their VoIP (voice over internet protocol) offering together, this is an interesting technology."
But he added: "We are back in the days of inflated valuations. If I were the owner of Skype and someone was willing to offer $3bn, I would take the money and run."
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