Should eBay sell Skype back to its founders?

Skype founders Janus Friis and Niklas Zennstrom are trying to buy back their Internet phone company from eBay

Skype founders Janus Friis and Niklas Zennstrom are trying to buy back their Internet phone company from eBay, the New York Times reported over the weekend. The pair are said to have approached potential investors for a multi-billion-dollar deal. Here's a summary of the situation:

* Friis, who is Danish, and Zennstrom, who is Swedish, founded Skype in 2003.

* EBay bought Skype for US$2.6 billion in 2005. Bonus payouts to Friis and Zennstrom raised their total take to $3.1 billion.

* Skype didn't fare as well as expected under eBay. In October 2007, eBay took a $1.43 billion hit from charges related to Skype.

* Friis and Zennstrom went on from Skype to found Joost, an online video service that uses peer-to-peer connections among members to share clips, rather than hosting them centrally as YouTube does. But Joost has not been anywhere near as successful as Skype. According to a report by GigaOm, people who claim to know Friis and Zennstrom have said the pair are eager to go back to running Skype.

* EBay CEO John Donahoe, the Times reports, has been trying to sell the company for a while, because EBay management doesn't see any real synergy between Skype and eBay's core business of online auctions and PayPal payments.

* Another problem for eBay: Skype's revenue growth has plateaued. Q4 total revenue, at $145 million, was about equal to Q3's 143 million.

* Donahoe's predecessor, Meg Whitman, signed a deal with Skype that let Friis and Zennstrom retain the core technology behind Skype through a holding company called Joltid. A round of lawsuits is already in progress. These may scare off potential buyers other than the Skype founders, who claim to own Skype's core technology.

* Nonetheless, Skype is now the world's largest long-distance carrier. The service has more than 400 million subscribers and carries about 8 percent of international long-distance traffic.

* Analysts quoted by the Times believe eBay won't sell for less than $1.7 billion. That rules out most would-be suitors other than Google, Microsoft, or Friis and Zennstrom.

A deal right now would be a huge relief for eBay. The company has more than $3 billion in cash, but only around $400 million of that is held in America. The Times notes that transferring cash from overseas would result in significant repatriation taxes. It makes more sense to sell off Skype.

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Paul Boutin

The Industry Standard
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