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EBay plans to spin off Skype in an IPO (or maybe sale)

April 14, 2009 |  4:28 pm

Skype
EBay and Skype are breaking up. Credit: manu contreras via Flickr.

Taking the first steps to unwind its strange 2005 marriage, EBay said today that it plans to spin off Internet phone service Skype through an initial public offering in 2010. The news comes a day after the San Jose online auction company said it would sell Internet search company StumbleUpon back to its founders.

Both announcements signal that EBay is making good on its promise to investors that it will focus on its online marketplace, rather than on the assorted businesses it has acquired over the last three years.

"Separating Skype will allow EBay to focus entirely on our two core growth engines -- e-commerce and online payments -- and deliver long-term value to our stockholders," EBay Chief Executive John Donahoe said in a release.

EBay bought Skype nearly four years ago with the idea that it could use voice over Internet protocol software to enable buyers and sellers to communicate (think haggling over prices) while conducting transactions. But some observers say that Skype has been a distraction for management, and ...

... that buyers and sellers don't want to talk to one another online. "EBay has no synergies with Skype," said Jeffrey Lindsay, a senior analyst at Sanford Bernstein.

EBay needs to focus on its core services as it loses ground to Amazon.com, Lindsay said. That's part of the reason EBay's stock is down 54% over the last year, compared with 29% for the Nasdaq composite index.

Senior executives have admitted recently that EBay and Skype don't fit well together, and they indicated through several write-downs of the value of the deal that EBay realizes it overpaid. But until today EBay hadn't announced any formal plans to separate them. News emerged this weekend that Skype's founders, Scandinavian entrepreneurs Niklas Zennstrom and Janus Friis, had tried to buy back the business but could not raise enough money.

The IPO is Plan B, Lindsay said. Other analysts speculate that the announcement of a public offering has another motive: It's acting as a for-sale sign for Skype, hoping to get some Internet giants in on the bidding.

"Otherwise, why announce an IPO now for something that’s a year away?" said James Mitchell, an analyst at Goldman Sachs.

-- Alana Semuels

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