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Sat, Sep 10, 2005 - Page 12 News List

EBay in tentative talks to buy Skype

ACQUISITION Investors were less than enthusiastic about the news, questioning whether eBay was abandoning its core business by pursuing the Web telephony firm


EBay is in negotiations to acquire Skype Technologies, the Internet phone company that has been the object of much merger speculation, for US$2 billion to US$3 billion, two people involved in the negotiations said on Thursday.

The talks are highly tentative and could fall apart, these people said, speaking on condition that they not be identified because the talks are continuing. These people also noted that Skype has wavered about selling or pursuing an initial public offering and has held merger discussions with News Corp and Microsoft, only to abandon those talks.

An acquisition of Skype would enable eBay to enter the rapidly growing market for Internet-based phone service. Cable providers and Bell companies are expanding quickly into that field, as are eBay rivals like Microsoft and Google.

Skype allows users who download its software and register for its service to talk to one another free over the Internet through their PCs. About 2 million Skype customers have signed up for a premium pay service that allows them to use their PCs to make calls to regular phone numbers as well as receive calls from regular phones.

Last month, Google announced a service similar to Skype's free service called Google Talk, and Microsoft said it was acquiring Teleo, a San Francisco company that allows users to call conventional phones from their PCs. The discussions between eBay and Skype were first reported in The New York Post and The Wall Street Journal on Thursday.

Shares of eBay fell 3.8 percent, or US$1.53, to close at US$38.93, as investors questioned whether eBay was abandoning its core business and worried that it might overpay for Skype.

In addition to a price tag that may be higher than US$2 billion, people close to the talks said eBay might also pay more than US$1 billion in additional incentives to Skype management.

"Certainly, any potential deal would be dilutive to earnings and would be rich relative to its current revenue multiple," Jeetil Patel, an analyst at Deutsche Bank, wrote in a note to investors.

For a company that is just over two years old, Skype has already amassed a large global following -- it says its telephony software has been downloaded 162 million times and it has 53 million registered users, with as many as 3 million using its service at any one time.

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