Ebay has agree to sell Skype to a group of private investors including Netscape co-founder Marc Andreessen in a deal which values the internet telephony company at $2.75 billion.
The deal closes a nettlesome chapter for Ebay, which gets back a significant portion of its $3.1 billion investment. The free and cheap calling service never integrated well with eBay's auctions, and Silicon Valley and Wall Street almost universally considered the purchase a boondoggle from the start.
Lead investor Silver Lake, along with Index Ventures, Andreessen Horowitz, and the Canada Pension Plan investment board, will pony up $1.9 billion in cash for a 65% stake of Skype, Reuters reports.
EBay had said it was seeking something in the neighborhood of $2 billion for the internet telephone company it purchased in 2005 for a price which ultimately reached $3.1 billion. It basically got its price — and with its 35% stake still gets to participate in a big way in any profits created by the new owners of the world's best-known internet telephone company.
Andreessen joined the board of directors of Skype last year. His firm, Andreessen Horowitz, was created only in July, but he and partner Ben Horowitz have been angel investors in Silicon Valley for years.
The Times reported earlier this year that Skype’s founders, Niklas Zennstrom and Janus Friis had sought to buy back the company, backed by private equity firms. In addition to speculation about Andreessen Horowitz, one of the Times' sources said Index Ventures and Silver Lake Partners were also involved.
EBay acknowledged some time ago that it had overpaid for Skype by about $1 billion — the purchase price was $2.6 billion but the Times has reported the total cost reached $3.1 billion after bonus payouts to founders. It took a took a $1.4 billion charge on purchase price in early 2007.
Purchase price aside, the acquisition never seemed to make much sense. One of the initial rationales behind the purchase — a "click to talk" feature integrated in eBay auction pages to give buyers and sellers a more immediate means of communicating with each other — never caught on and was abandoned. After that, with credible synergies elusive, the only justification for owning a non-strategic property like Skype would be if it added significantly to the bottom line.
It doesn’t. Ebay posted $8.54 billion in revenue last year, to which Skype contributed a paltry $550 million — about $1.35 per user. The basic service, calls over the internet to other Skype users, is free. Revenue comes from such up-charges as calls out to the normal telephone system, a rented telephone number so non-Skype members can call in and voicemail-to-text conversion.
But the underlying technology has been widely accepted and is no longer a geeky novelty. Skype is now the largest provider of international calls in the world. It has apps for the Blackberry and iPhone, and the world's largest handset maker, Nokia, announced in February that it would preload Skype software into some of its new smartphones starting from the third quarter of this year. And in March Skype made a bid to enter the enterprise space with "Skype for Sip."
One cloud on the horizon remains a UK lawsuit by Skype's founders over a licensing agreement with eBay over Skype's core peer-to-peer communications technology. Ebay contends it is not in breach, but the case is apparently nowhere near resolution. But eBay acknowledged in a recent 10-Q filing with the Securities and Exchange Commission that if it were to lose the case "Skype would be severely and adversely affected and the continued operation of Skype’s business as currently conducted would likely not be possible."
If investor confidence is any measure at all, the new majority owners of Skype don't seem to be the least bit worried about this at all.
Via EBay to sell Skype for $2.75 billion [Reuters]
See Also:
- Marc Andreessen Forms Boutique Venture Capital Firm
- Marc Andreessen Joins EBay Board
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- Skype to IPO Early Next Year - UPDATED
- Skype Announces Service for iPhone, BlackBerry
- Apply Net Neutrality to Skype on Smartphones, Group Asks Feds
- Nokia to Sell Phones With Skype Software