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eBay to sell Skype to a consortium of private investors news
01 September 2009

eBay Inc the American online auction company, is expected to announce a deal today for selling its voice-over-IP service  Skype to a consortium of private investors, the New York Times said, citing two people briefed on the company's plans.

The report said that the investment group is likely to include Netscape co-founder Andreessen Horowitz and a new venture capital firm headed by him.

London-based Index Ventures, which was an early investor in Skype and Silver Lake Partners may also be involved in the deal, one of the people told the paper.

Although the price tag for the sale of Skype was not disclosed, eBay was looking for around $2 billion.

Although eBay had outbid Google and Yahoo in acquiring Skype for $2.6 billion in September 2005 from Skype's founders Niklas Zennstrom and Janus Friis, it hardly added any significant value to the company and eBay admitted that the acquisition was a strategic and financial failure.

In April 2009, eBay had decided to spin off Skype as a separate company through an initial public offering in the first half of 2010, while remaining a "significant" shareholder. (See: eBay plans Skype public offering in 2010)

Skype's founders, Niklas Zennstrom and Janus Friis, held talks with several private equity firms in April to make a bid for Skype since current CEO John Donahoe said that Skype had no synergies with the rest of eBay, which also owns online payments service PayPal. Donahoe has said the company would do what was best for eBay and Skype. (See: eBay looking to sell Skype to original owners: report)

But the deal did not materialise over difference in the valuation of Skype.

Last month, eBay also was in talks with Google for a possible sale, but Google shied away from the deal fearing that that the acquisition may raise anti trust concerns.

This month, eBay filed a case in the UK High Court of Justice in London to resolve a dispute regarding its peer-to-peer (P2P) telephony technology with Joltid Limited, a company run by Skype's founders.

Skype currently uses Global Index technology from Joltid to make its P2P connections back-end and, without this technology, Skype would just become a shell without the software engine to drive it.

The licensing agreement dispute was previously disclosed by eBay in its 20 February 2009 annual report, saying Skype terminated a ''standstill'' agreement, allowing either party to take action against the other beginning in March.

Joltid is attempting to terminate the agreement based on allegations that Skype has breached its terms. Skype said that it strongly refutes those allegations and is confident of its legal position.

When Zennstrom sold Skype to eBay for $2.6 billion in September 2005, he retained the licensing rights to the Global Index technology through his company Joltid.

Analysts have questioned the wisdom of eBay as to how it shelled out $2.6 billion to acquire the VoIP firm without the technology that drives it.

Joltid has now brought a counterclaim to eBay's court action by alleging that Skype has repudiated the licence agreement, infringed Joltid's copyright, misused confidential information and has terminated the licence to use its technology.

Skype's software enables the world to communicate either freely or for a few pennies. 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.

In the second quarter, Skype's revenue grew 25 percent year-on-year to $170 million and added 37.3 million new users, ending June 2009 with over 480.5 million registered users.


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eBay to sell Skype to a consortium of private investors