EBay to Sell 65 Percent Of Skype for $1.9 Billion

Auction giant eBay announced Tuesday that it is selling the majority of its stake in Internet phone service Skype to private investors, unwinding a troubled acquisition that never meshed well with the online retailer's operations.

Under the deal, a group of investment funds led by high-tech private-equity firm Silver Lake Partners agreed to pay eBay $1.9 billion in cash and lend $125 million for 65 percent of Skype, a popular service that allows free or low-priced calls internationally over an Internet connection. Other investors include Index Ventures, venture-capital firm Andreessen Horowitz launched by Netscape founder Marc Andreessen, and the Canada Pension Plan Investment Board. EBay said in a release that the deal values Skype at $2.75 billion and that it will keep the remaining 35 percent stake in Skype.

EBay, which has been looking for a way to part with Skype for months, said the sale helps undo a pairing of companies that have different business lines and never were able to effectively leverage their technologies off each other. It said earlier this year that if it didn't find a buyer, it would spin off the company in an initial public offering in 2010.

"Skype is a strong standalone business, but it does not have synergies with our e-commerce and online payments businesses," eBay chief executive John Donahoe said in a statement. "As a separate company, we believe that Skype will have the focus required to compete effectively in online voice and video communications and accelerate its growth momentum."

Analysts said the deal, expected to close in the fourth quarter, was good news for eBay, which paid $2.6 billion for Skype four years ago. It's also good news for Skype, analysts said, which might have more opportunity to experiment and grow as an independent company.

Shares of eBay fell 46 cents, or 2.1 percent, to $21.68 on a day when the technology-heavy Nasdaq composite index slid by a similar amount.

In 2005, then-eBay President Meg Whitman acquired Skype while the auction firm was struggling to find new avenues for growth. Whitman had hoped to use the service's voice-over-Internet offerings as a way to connect eBay's buyers and sellers, and provide an added revenue stream.

But several analysts criticized the deal, saying eBay had little expertise running a communications firm.

"Meg grossly overpaid for it, and investors soured on it right away," said Jeffrey Lindsay, senior Internet analyst at Sanford C. Bernstein. "Any synergies between the companies existed only in Meg's mind. She was trying to buy growth."