M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Friday, November 20, 2009

eBay/Skype: RIP

eBay announced on Thursday that it closed its sale of Skype.  

The buyer, who will control an approximately 70 percent stake, is an investor group led by Silver Lake and includes Joltid Limited and certain affiliated parties, the Canada Pension Plan Investment Board and Andreessen Horowitz.

eBay received approximately $1.9 billion in cash and a note from the buyer in the principal amount of $125 million [valuing the business at 2.75 billion]. The company retained an approximately 30 percent equity investment in Skype. The company also purchased senior debt securities with a face value of $50 million as part of a Skype debt financing.

eBay purchased Skype in September 2005 for $2.6 billion in cash and stock plus the mother-of-all-earnouts (up to $1.5billion). In the end, Skype was a dud for Bay - though personally, I'm a big fan of the technology.  It just wasn't right for eBay.  Why would you want to talk to people selling stuff on eBay anyway?  Also, more generically, the earnout didn't live up to its potential as an incentive device and only about a third of it was reportedly paid out. As we've noted here in the past, earnouts seem like an elegant way to bridge a valuation gap, but they're really, really hard. 

As this deal moves quickly into everyone's rear-view mirror, there remain two lingering questions from this deal:  1) why earnouts?; and  2) why her



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yes you're right- i don't think skype ever would have worked well for ebay- they do need to develop a more instant way of sellers and buyers interacting though.

Posted by: Road Accident Solicitor | Nov 30, 2009 7:15:05 AM

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