Phone
An IPO would be a way for Chief Executive Officer John Donahoe to offload a business that he says doesnt fit with the rest of EBays operations. The exact timing of the offering will depend on market conditions, EBay said yesterday.
Skype handles 8 percent of all cross-border voice traffic, making it the worlds largest provider of international calls, according to research firm TeleGeography. Meg Whitman, Donahoes predecessor, bought Skype for $2.6 billion in 2005 with the aim of giving buyers and sellers a way to speak to each other. Even though that goal was never realized, Skypes sales reached $551 million last year.
“The only problem with Skype is its part of EBay,” said Jeff Lindsay, an analyst at Sanford C. Bernstein & Co. in New York. “Its a marriage made in hell. They will make more money from spinning it out than they ever could by keeping it.”
The IPO could raise $500 million to $1 billion for EBay, depending on how much equity the company gives up, said Paul Bard, an analyst with Renaissance Capital LLC in Greenwich, Connecticut. Skypes market value could be $3 billion to $5 billion, he said. Goldman Sachs Group Inc. will lead the underwriting.
Skype Me
Skype, a piece of software that lets people make calls and hold videoconferences over the Internet, accounts for about 6 percent of EBays sales.
The program, which routes calls over the Internet rather than traditional phone networks, gained global popularity by being among the first to offer high-quality calls for free, said Allen Weiner, an analyst at Gartner Inc. in Scottsdale, Arizona.
Users install the Skype software on their computers and use a headset or Web cam to chat with others. Calling from one computer to another is free. Customers pay per-minute fees when they call mobile phones or regular home phones. Skype also charges for features such as voice mail and text messages.
Skype, which has more than 400 million users, says the service isnt designed to replace home phones, because users cant call emergency services. That makes it different from Internet-phone services offered by companies such as Vonage Holdings Corp., which are designed to replace home phones.
EBay, based in San Jose, California, rose 43 cents, or 3 percent, to $14.81 in late trading yesterday on the Nasdaq Stock Market. The shares have climbed 3 percent this year.
Private-Equity Interest
“I dont think this limits their options in any way of what they could do with Skype,” said Soleil Securities Group Inc.s Laura Martin, referring to EBays management. The Los Angeles- based analyst has a hold rating on EBay shares, which she doesnt own.
Donahoe is looking to the public markets at a time when demand for IPOs has evaporated. Mead Johnson Nutrition Co., a former Bristol-Myers Squibb Co. unit, was the only IPO by a U.S.-based business last quarter. The company, the worlds biggest maker of baby formula, raised $828 million in February. Last year, 20 companies went public in the first quarter, raising a total of $24 billion.
Filing for an IPO doesnt prevent another company from swooping in to buy Skype, said David Menlow, president of IPOFinancial.com in Millburn, New Jersey.
Other Options
“If the company thats coming public is viewed as undervalued, then its a possibility the deal could be canceled,” Menlow said. EBay could strike a deal with a private-equity firm or another buyer if the price is right, he said.
KKR & Co., the buyout firm run by Henry Kravis and George Roberts, considered backing a proposal by Skypes founders to buy back their company, the Wall Street Journal reported this week, citing people familiar with the situation.
“It is clearly our intent to pursue an IPO,” said EBays Marks. “We are not soliciting bids. If somebody submits an offer, well take a look at it.”