eBay Wins With Skype Deal

By Eric Jackson05/10/11 - 09:39 AM EDT

NEW YORK (TheStreet) -- When former eBay(EBAY_) CEO Meg Whitman bought Skype in 2005 for $2.6 billion ($3.1 billion with all the earn-outs added back), most assumed it was the deal that would sink her career.

It seemed like a laughable idea then: that buyers and sellers on eBay's marketplace were going to click on a Skype icon and talk to each other to finalize the details of their transactions.

It was a laughable idea. It was completely strategically flawed at the time. It never should have been done in the first place, and Whitman's successor sought to undo the deal as quickly as he could.

On top of that, Whitman took a lot of heat for overpaying for Skype. Critics said that spending so much money on a private company showed a callous disregard for eBay shareholders.

I believe, in fact, that the size of the Skype deal scared other buyers from anything close to that price range -- until Groupon came along.

The only big Internet deal after Skype (and before the rumored interest in Groupon by Google(GOOG_)) was YouTube for $1.5 billion. Remember when that amount seemed staggering?

When current eBay CEO John Donahoe sold off 65% of Skype in 2009 to outside investors including Andreesen Horowitz and the Canada Pension Plan Investment Board, eBay shareholders and the business media in general seemed relieved.

That deal was struck for $1.9 billion. It was still far below the purchase price from 2005, but eBay seemed to get more pats on the back for at least getting back close to even.

Now, not even two years later, Microsoft(MSFT_) is paying $8.5 billion for all of Skype.

It's difficult to criticize Donahoe for making the 2009 deal to sell off most of the company. Back in 2009, few would have predicted that in only two years Silicon Valley would be seeing huge multiples of the YouTube takeout price paid for private companies. In fact, people would have thought you were crazy.

Donahoe deserves credit for keeping a minority stake of 33% in Skype. That was smart.

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