Professional Documents
Culture Documents
Group 2
The Story - EBay
•Founded in Silicon Valley by Pierre Omidyar in 1995
•In 1996, Feedback Forum was introduced to eliminate problems like fraud
and cheating.
• Online bulletin boards were also introduced to guide fellow or new users.
•Jeff Skoll joined the business as the company’s president in 1996, the
same year in which it was incorporated as eBay
•In 1997, it was one of the most visited sites on the internet, with more than
150,000 users (in mid 1996, only 5000 users)
• In 2003 and 2004, eBay strengthened its presence in growing overseas
markets like China, Korea and India, through select acquisitions
• The culmination would increase the scope and reach of both companies
• Identified Skype as a fast growing enterprise in this field – with over 150000 members
subscribing each day
• Email messages to Direct calling between buyers and sellers, for which sellers would pay a
fee to avail the facility
• Addition of Skype was expected to bring new ideas & expertise to fuel EBay's slow growth
• Stronger enterprise able to compete with giants such as Yahoo and Google
• Access to markets where EBay was not prominent and Skype was. Such as China, India,
Japan and Russia. Customers could learn about EBay through Skype.
• Skype would complement EBay and PayPal, thereby fitting into EBay's overall value
position
What was in it for Skype?
• Skype, although acquired, could still retain individual identity –
Pursue its business under its own brand
• Huge member community base and they entered the deal when the
market was hot
• Some critics believed that EBay paid too much to acquire Skype. (2.6 bn for a
company that only made 7 mn USD in revenues)
• Belief that Skype would have been better off on its own as the acquisition did
not add any value
• PayPal remains the saving grace with an increase in revenues of 11% to 299 bn
USD in the second quarter of 2009.
Deal Structure
•Two tiered
•Immediate purchase price of USD 2.6 billion
•Also, a performance based earn-out was negotiated | additional USD 1.7
billion |
•Shareholders representing approximately 42% of the Skype shares ultimately
chose to receive a single payment in cash and eBay stock at the close of the
transaction.
•Shareholders representing the remaining approximate 58% of the Skype
shares chose to receive a reduced up-front payment in cash and eBay stock at
the close plus potential future earn-out payments.
•Key Skype personnel had to commit to work for the newly formed eBay
subsidiary for the next few years
Reactions
•Mixed
•EBay shares fell nearly 4%
•Synergy & core competency were questioned
•The best thing about the whole deal is that eBay didn't damage the
company.
Critically analyze eBay’s growth through its
various acquisitions. Did these have any impact
on the deal with Skype?
Strategic Acquisitions
• eBay started acquiring companies in 1998 to
expand their online auction business.
• They made few acquisitions that are really
helpful for growth of ebay like Paypal, baazee,
bill point, auction house etc.
• They expand their business in almost dozens
of countries by acquiring baazee in India,
ibazar in France, Eachnet in China etc.
Impact on the deal
• Skype was expected to bring growth, increased
customer base and diversification in online
business by this deal.
• But the growth has been slowed down by these
huge paid deal.
• There was also a threat to Skype from different
countries.
• Since it is affecting the revenue of telecom
sector. Ex: CHINA
Does the acquisition of Skype make strategic sense to eBay?