eBay, an online marketplace and payments platform provider, and Skype Technologies, a global online communications company, announced on Monday that the former would acquire the latter for $2.6 - $4.1 billion depending o Skype’s financial performance going forward. The move enabled eBay to enter telecom market and enable its customers with voice communications capabilities.

eBay to Add Skype Capabilities to Its Services Portfolio

“Communications is at the heart of ecommerce and community. By combining the two leading ecommerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net,” said Meg Whitman, president and chief executive officer of eBay.

Skype generated approximately $7 million in revenues in 2004, and the company anticipates that it will generate an estimated $60 million in revenues in 2005 and more than $200 million in 2006. Still, the reasons why eBay had decided to acquire the world’s most-successful Voice-over-Internet-Protocol (VoIP) provider lie beyond revenues of Skype.

In addition to services aimed at consumers – SkypeIn, SkypeOut and some others – Skype may eventually offer business-oriented services, including video-conferencing and similar software. Furthermore, Skype has been working with makers of “Skype-ready” mobile devices, which may mean licensing fees for the company. Furthermore, Skype boosts consumer services provided by eBay and gives the company something that it lacked compared to Google and Yahoo! – instant messaging and voice communitcation capabilities.

eBay and Skype note some other benefits integration of Skype into eBay’s portfolio of services:

• Communications, like payments and shipping, is a critical part of this process. Skype will streamline and improve communications between buyers and sellers as it is integrated into the eBay marketplace. Buyers will gain an easy way to talk to sellers quickly and get the information they need to buy, and sellers can more easily build relationships with customers and close sales.
• In addition to eBay’s current transaction-based fees, ecommerce communications could be monetized on a pay-per-call basis through Skype.
• A PayPal wallet associated with each Skype account could make it much easier for users to pay for Skype fee-based services, adding to the number of PayPal accounts and increasing payment volume.
• In addition, Skype can help expand the eBay and PayPal global footprint by providing buyers and sellers in emerging ecommerce markets, such as China, India, and Russia, with a more personal way to communicate online. And consumers in markets where eBay currently has a limited presence, such as Japan and Scandinavia, can learn about eBay and PayPal through Skype.
• Skype can also help streamline cross-border trading and communications.

Details of Transaction

eBay will acquire all of the outstanding shares of privately-held Skype for a total up-front consideration of approximately €2.1 billion, or approximately $2.6 billion, which is comprised of $1.3 billion in cash and the value of 32.4 million shares of eBay stock, which are subject to certain restrictions on resale.

The maximum amount potentially payable under the performance-based earn-out is approximately €1.2 billion, or approximately $1.5 billion, and would be payable in cash or eBay stock, at eBay’s discretion, with an expected payment date in 2008 or 2009. Skype shareholders were offered the choice between several consideration options for their shares. Shareholders representing approximately 40% of the Skype shares chose to receive a single payment in cash and eBay stock at the close of the transaction. Shareholders representing the remaining 60% 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 which are based on performance-based goals for active users, gross profit and revenue.

The acquisition is subject to various closing conditions and is expected to close in the fourth quarter of 2005.