eBay to Buy Skype?

3:12 pm on September 8, 2005 | Category: Business, VoIP

Shares of eBay Inc. tumbled almost 4% today due to reports that the online auction company was considering purchasing Luxembourg-based Skype Technologies. The New York Post and Wall Street Journal reported that eBay may buy the popular internet telephony service for as much as $5 billion.

The uncertainty around eBay’s strategic reasons for the pursuing the deal, along with worry about possible share dilution has caused something or a investor panic, and caused eBay’s stock price to drop $1.53 to $38.93.

A move into the VoIP telephony industry is definitely a risky one for eBay, but it could provide many long term benefits for the company, points out Legg Mason analyst, Scott W Devitt. He claims that buying out Skype could allow eBay to more tightly knit its market of buyers and sellers, and make it possible for them to break into the telecommunications industry with an already established brand name and user-base.

Today’s slide in stock price doesn’t necessarily mean that a deal to purchase Skype can’t be a long-term success for eBay, but it should definitely serve as a warning to proceed with caution.

A large contributing factor to today’s investor sellout could be the highly intimidating price tag (which some sources have suggested may be as high as $5 billion), especially since the general industry consensus is that even $2 – $3 billion is considerably overpriced. If eBay is intent on making this deal, and doesn’t want to trigger investor panic, they’ll almost certainly have to bargain the price down to a more reasonable level.

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    1. [...] eBay shareholders seemed cautiously optimistic about the move, a change from the mild panic incurred last week when the possibility of a Skype acquisition was first announced. The company’s share price was up 0.83% today, signaling that most shareholders are willing to accept the risk associated with this agreement, and move forward, hoping for the best. [...]

      Pingback by Telecommunications Industry News » eBay Finalizes Skype Acquisition — September 12, 2005 #

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    Edited by Jeremy Maddock