I love Swedish meatballs, but that doesn’t mean I have to like the news that on-line auctioneer eBay Inc. (NASDAQ/EBAY) will buy Swedish- based Internet phone provider Skype Technologies SA. Nothing against Sweden, but I really don’t have a clue why eBay would pay $2.6 billion in cash and stock for Skype. Maybe I’m missing something, but please explain!
Worst of all, the proposed deal could rise to $4.1 billion if certain performance targets are achieved over the next three years by Skype. Does eBay know something I don’t? Maybe it does, but I really need some convincing that this deal will benefit shareholders.
eBay tells us the deal will, in its words, create “an unparalleled e- commerce and communications engine.” According to eBay’s CEO, Meg Whitman, the on-line auctioneer needs a more effective communications platform so buyers and sellers can better communicate with each other. Sorry, but I’m still not convinced. I’ll just take the meatballs, please.
I have used eBay on multiple occasions, and in my view, the existing internal communication system used by buyers and sellers is effective. So why in the world would you pay at $2.6 billion or more to fix something that, in my view, isn’t even broken?
It may be true that Voice over Internet Protocol technology, or VoIP, is a superior and cheaper way of communicating, versus fixed or wireless phones, but why does eBay need it? This may begin to sound like a rhetorical question, but I’m just dumbfounded!
I believe eBay is gambling on VoIP to really take off and to benefit from a growing market. But to try and tell us the acquisition is to create a better communications system for buyers and sellers is far fetched. I believe the reality is that eBay wants to expand its revenue stream and diversify. Google (NASDAQ/GGOG) and Microsoft Corp. (NASDAQ/MSFT) are doing it, and e-Bay wants a piece of the action whether it makes any sense to the investment community or not.
Hey I’m looking forward to trying VoIP when buying and selling on eBay, but the deal still makes no sense to me. Sorry Meg!