By Beth Jinks
Tuesday, October 7, 2008
EBay, whose shares are trading at an almost six-year low, will cut 10 percent of its workforce and agreed to buy two payment and classified advertising companies for $1.34 billion as sales growth slows at its Internet marketplace unit.
EBay will purchase online-credit service Bill Me Later based in Timonium, Md., for $945 million and merge it with its PayPal payment division. The company also agreed to buy Denmark's Den Blaa Avis for its newspaper and the country's two biggest classified Web sites for $390 million.
One thousand full-time employees and about 600 temporary and part-time workers will be fired as San Jose-based eBay seeks to reaccelerate sales that rose at the slowest pace since 1998 and met the "low end" of its third-quarter forecast. Chief executive John Donahoe's purchase of Bill Me Later indicates an increasing reliance on payment services to boost revenue as it competes with Amazon.com.
"EBay is largely a virtual business, and it doesn't have a lot of customer-service operations; it probably had too many people," Jeffrey Lindsay, an analyst at Sanford C. Bernstein in New York, said yesterday in an interview. Buying Bill Me Later "was a very astute move. It gives eBay access to parts of the transaction and fees that they don't normally get."
Shares of eBay declined $1.05, or 5.5 percent, to close at $17.89 in Nasdaq Stock Market composite trading, the lowest since January 2003, as the broader market fell. The shares have dropped 46 percent this year.
EBay said the purchase of Bill Me Later, which extends credit, giving users the option for deferred payments, will reduce adjusted profit by 3 to 5 cents a share in the fourth quarter and 6 cents more in 2009. It will start adding to earnings in 2011, the company said.
PayPal is the biggest online payment system, and Bill Me Later is second.
Amazon owns about 10 percent of Bill Me Later, Lindsay said, and will probably "sever their relationship" following eBay's takeover.
The job cuts, which will be completed by year's end, will cost eBay $70 million to $80 million pretax, most of which will be recorded in the fourth quarter, and lead to annual savings of about $150 million.
Donahoe inherited about 15,500 employees when he took over in April, almost double the 8,100 at the start of 2005.