eBay to Sell Skype To Private Investors

(Reuters) – EBay Inc plans to sell a 65 percent stake in its online phone unit Skype for $1.9 billion to private investors including Silver Lake and a venture firm run by the Netscape co-founder Marc Andreessen.

Shares in eBay rose 40 cents or 1.8 percent to $22.54 on Nasdaq after the news.

The deal values Skype at $2.75 billion, according to the Internet auction house, which had bought the phone company in 2005 for about $3.1 billion.

The group buying Skype also includes London-based Index Ventures and the Canada Pension Plan, in addition to Silver Lake and Andreessen’s firm Andreessen Horowitz.

The deal lets eBay focus on its PayPal electronic payments service as well as its flagship auction service, the company said.

EBay originally planned to spin off Skype next year. John Donahoe, eBay’s chief executive, said in May that a $2 billion valuation would be low for the growing Internet telephone business.

In 2007, eBay wrote down about $1.4 billion of its investment in Skype, conceding it did not fit in with the rest of its online auction business.

“Skype is a strong standalone business, but it does not have synergies with our e-commerce and online payments business,” Donahoe said in a statement.

EBay expects the deal to close in the fourth quarter. The transaction is not subject to a financing condition.

(Reporting by Sinead Carew in New York and Ajay Kamalakaran in Bangalore, editing by Will Waterman and Derek Caney)

Update: eBay has just sent out the following statement:

Skype Technologies S.A. and an investor group led by Silver Lake announced today that they have signed a definitive agreement in which the investor group will purchase a 65 percent interest in Skype Technologies from eBay (NASDAQ: EBAY) for approximately $1.9 billion in cash, in a transaction valuing Skype Technologies at $2.75 billion. eBay will retain the remaining 35 percent equity interest in Skype.

Skype Technologies is the manufacturer and developer of Skype software, which is used by millions of individuals and businesses to make free video and voice calls, send instant messages and share files with other Skype users. The software also allows users to make low‐cost calls to landlines and mobile telephone lines.

The purchasers are a strong consortium with complementary skill sets. Members of the investor group are Silver Lake, the leader in private investment in technology, technology‐enabled and related growth industries; Index Ventures, a premier global venture capital firm; Andreessen Horowitz, a recently launched venture capital firm led by Netscape founder Marc Andreessen and Ben Horowitz; and the Canada Pension Plan Investment Board (CPPIB).

“We are extremely fortunate to have such a talented and seasoned group invest in our company,” said Josh Silverman, CEO of Skype. “This is a group of investors and industry veterans that have a strong track record of taking the technology companies they own to the next level. With their know‐how helping to guide our vision, Skype is poised to enter the next phase of its growth and development.”

“Skype Technologies is an innovative, next‐generation technology company that has changed how people and businesses communicate with each other,” said Egon Durban, Managing Director at Silver Lake. “This transaction benefits all parties involved and will allow Skype the opportunity to accelerate the growth of its business by harnessing the deep technological and company development expertise that resides within the investor group. Josh Silverman has done a strong job leading the company and we look forward to working with Josh and his team to grow the Skype franchise.”

“Skype is one of Europe’s greatest startup success stories. In 2004, we recognized its potential as a global telecommunications leader and we’ve been captivated by the business since we first invested,” said Mike Volpi, Index Partner. “eBay has continued to foster Skype’s growth as the Internet voice and video communication leader. We are delighted to join this all‐star team of professionals and investors in the next chapter of the Skype adventure.”

“Skype is the archetypal Internet phenomenon: a breakthrough technology combining with enormously powerful network effects to revolutionize a gigantic industry,” said Marc Andreessen, Co‐Founder of Andreessen Horowitz. “With this acquisition, we will work with the Skype team and eBay to build the company into a core Internet franchise at huge scale.”

“This acquisition represents an opportunity to acquire a leader in the rapidly growing internet telecommunications market and one of the most strategically valuable internet brands in the marketplace. We look forward to working with our partners to help grow Skype in this accelerating industry,” said Mark Wiseman, Senior Vice‐President, Private Investments with the CPP Investment Board.

“There is no doubt in my mind that the talented players that make up this investment group will enable strong growth of Skype in the years to come,” said John Donahoe, CEO of eBay. “The management team at Skype is one of the most innovative in the industry, and their talent and innovation will be enhanced through this partnership. For eBay, this transaction allows us to unlock both immediate and long‐term
value while benefiting from talented partners to help Skype accelerate its growth momentum.”

Skype Technologies generated revenues of $551 million in 2008, a 44% increase compared to 2007.

Registered Skype users reached 405 million by the end of 2008, a 47% increase from 2007. eBay has projected Skype Technologies revenues to exceed $1 billion in 2011. Skype Technologies recently introduced a popular Skype iPhone app as well as partnerships with mobile carriers such as Nokia and Hutchison. The company is attracting thousands of new users daily.

J.P. Morgan, Barclays and RBC Capital Markets advised Silver Lake and its investor group and have committed to provide the financing necessary to complete the transaction. Sullivan & Cromwell LLP, Simpson Thacher & Bartlett LLP, Bird & Bird LLP and Michael Silverleaf QC are acting as legal advisors to the investor group.

Goldman Sachs is providing financial advice to eBay on the transaction. Dewey & LeBoeuf LLP and Sidley Austin LLP are acting as legal advisors to eBay.

About Skype Technologies
Skype is software that enables the world’s conversations. Millions of individuals and businesses use Skype to make free video and voice calls, send instant messages and share files with other Skype users. Everyday, people everywhere also use Skype to make low‐cost calls to landlines and mobiles.

About Silver Lake
Silver Lake is the leading investment firm focused on large scale investments in technology, technologyenabled, and related growth industries. Silver Lake’s mission is to function as a value‐added partner to the management teams of the world’s leading technology franchises. Its portfolio includes or has
included technology industry leaders such as Ameritrade, Avago, Business Objects, Gartner, Instinet, Intelsat, NASDAQ, Sabre / Travelocity, Seagate Technology, SunGard Data Systems and UGS. For more
information, please visit www.silverlake.com.