Posted by: Douglas Macmillan on September 1, 2009
In a deal announced Tuesday morning, eBay has agreed to sell Internet calling service Skype to a group of investors which includes private equity firm Silver Lake, Index Ventures, Canada Pension Plan Investment Board, and Andreessen Horowitz, the venture capital fund launched by eBay board member Marc Andreessen earlier this year.
The deal, which the New York Times first reported, values Skype at around $2.75 billion. EBay will get $1.9 billion upfront in cash, around $125 million in short-term debt, and will retain a 35% stake in the company. The San Jose company purchased Skype in 2005 for $3.1 billion, but later wrote down $900 million of that investment.
Though the voice-over-Internet service added a high-growth business to eBay, generating $526 million in revenues and adding 129 million users last year, investors and analysts criticized its incompatibility with the company’s online auction and payments businesses. In April, eBay announced its plans to spin off Skype in an initial public offering in 2010 — a move that likely brought its eventual buyers to the negotiating table.
One risk for Skype’s new owners is the prospect of losing rights to the service’s core peer-to-peer technology, which eBay was only licensing from Joltid, a company controlled by Skype founders Niklas Zennstrom and Janus Friis, since the 2005 purchase. An ongoing legal battle between eBay and Joltid has forced the auction company to develop a replacement technology should it lose the right to retain the license in court. It’s unclear whether the replacement technology is now fully developed, whether Silver Lake and the other buyers inherit it, and if Zennstrom and Friis themselves have a role in the purchase of Skype.
The sale sees John Donahoe undoing a highly criticized acquisition of his predecessor Meg Whitman, who he took the reins from in early 2008. “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,” Donahoe said in a statement. In May, he was quoted as saying a $2 billion valuation for Skype was “low.”
Donahoe and his team are now freed up to focus on growing the company’s sluggish e-commerce business and realizing the huge potential for online payments business PayPal. Meanwhile, Skype remains a top candidate for a public offering in the next year.