No other eBay sales expected; market gauges Marvel buy; BJ sale unlikely to spark deals

By Cristal Cody

Tupelo, Miss., Sept. 1 - eBay Inc. said Tuesday it will sell a majority stake in its Skype Technologies SA unit in a transaction valued at $2.75 billion to focus on its core assets, which include a number of other units that are not expected to be offered for sale, an analyst told Prospect News.

Meanwhile on Tuesday, the market continued to digest the length of time it will take to realize benefits from Walt Disney Co.'s $4 billion cash-and-stock acquisition of Marvel Entertainment, Inc.

In other situations, Baker Hughes Inc.'s $5.50 billion cash-and-stock acquisition of BJ Services Co. is unlikely to prompt other deals in the pressure pumping oilfields industry, an analyst said Tuesday.

Stocks fared worse on Tuesday as economic concerns increased.

The Dow Jones Industrial Average lost 185.68 points, or 1.96%, to close at 9,310.60.

The Standard & Poor's 500 index shed 22.58 points, or 2.21%, to end at 998.04, while the Nasdaq Composite index slipped 40.17 points, or 2.00%, to 1,968.89.

eBay narrows focus

eBay will sell 65.00% of the equity in Skype in exchange for $1.90 billion in cash and a note for $125 million to an investor group led by private investment firm Silver Lake.

The online marketplace company will retain a 35.00% stake in Skype, which operates software that allows free or low-cost video and voice calls over the internet.

San Jose, Calif.-based eBay bought Skype for $2.60 billion in 2005, but the acquisition didn't mesh with its auction site and PayPal system. The company said in April it planned to separate Skype through an initial public offering in 2010 but would consider any bids in the meantime.

"This deal achieves our goal of delivering short- and long-term value to eBay and its stockholders, without the possible delays and market risk of an IPO," eBay president and chief executive officer John Donahoe said in a statement.

Frederick Moran, an analyst with the Benchmark Co., told Prospect News on Tuesday that eBay and Skype are better off under this transaction.

"Given that Skype was not a strategic asset for eBay, it certainly makes sense to sell it, as opposed to taking it public," he said. "Taking it public represents a last-resort effort to separate an asset from a company. In an IPO, you likely wouldn't have gotten as good as a valuation and you wouldn't have gotten Skype separated off from eBay as quickly as selling it to this group."

eBay's remaining assets, including its online marketplace and PayPal electronic payment system, are considered core assets and the company is unlikely to be interested in divesting any other units that include online platforms StubHub, Rent.com and Shopping.com, Moran said.

"Skype didn't help the competitive positioning of eBay, but now what remains are two core assets that are clearly critical," he said. "While you could argue there might be smaller businesses that they could potentially sell, you really don't have anything of the size or magnitude of Skype that would be considered an asset for sale. Other than Skype, we assume everything else under eBay's ownership would be strategically valuable."

eBay expects the transaction to close in the fourth quarter.

Silver Lake said that J.P. Morgan Chase & Co., Barclays Bank plc and RBC Capital Markets Corp. will finance the transaction.

The investor group's members include Andreessen Horowitz, a venture capital firm created in July and partnered by Netscape cofounder Marc Andreessen, who also sits on eBay's board; global venture capital firm Index Ventures; and the Canada Pension Plan Investment Board.

"Skype is one of Europe's greatest startup success stories. In 2004, we recognized its potential as a global telecommunications leader, and we've been captivated by the business since we first invested," Mike Volpi, partner at Index Ventures, said in a statement.

Shares of eBay fell 46 cents, or 2.08%, to close at $21.68 on Tuesday.

Funding Spiderman

Market observers continued to note on Tuesday that synergies in Disney's acquisition of Marvel could be a long time in coming.

Burbank, Calif.-based Disney said Monday it will acquire New York-based Marvel and more than 5,000 Marvel characters such as Spider-Man, X-Men and Captain America for $30.00 a share in cash and 0.745 of a share of Disney for each Marvel share.

"Disney's acquisition of Marvel appears to be strategically logical - leveraging Marvel's comic-book/superhero content across Disney's global platform," a market source said Tuesday.

"While we do not doubt the acquisition will ultimately prove successful, it appears that Disney investors may have to wait quite a while to see the bulk of the synergies that the Marvel acquisition may ultimately yield," the source said. "The most challenging part of the transaction is that the biggest upside, long term, comes from characters that are unproven theatrically."

Only a handful of the more than 5,000 characters included in the Marvel acquisition are widely known.

Marvel's stock slipped 67 cents, or 1.39%, to $47.70 on Tuesday.

Disney shares fell 36 cents, or 1.38%, to close at $25.68.

No peer pressure

Baker Hughes on Monday agreed to pay $2.69 in cash and 0.40035 of a share of Baker Hughes for each BJ share to expand its international business in the oilfield services industry.

The Houston-based companies have partnered on other projects and a combination will offer Baker Hughes a more competitive pricing structure, but the deal is not likely to inspire further industry consolidation, Robert MacKenzie, lead analyst on the coverage of Baker Hughes for FBR Capital Markets Corp., said Tuesday in a research note released to Prospect News.

Baker Hughes provides drilling and service products to the industry, while BJ provides pressure pumping and pipeline services.

"We believe it is unlikely that other integrated service providers like Smith International or Weatherford will also look to acquire additional pressure-pumping capacity," MacKenzie said. "Weatherford already generates nearly $500 million in revenue from pressure pumping, significantly higher than Baker's estimated $150 million in pressure-pumping revenue in 2008."

Baker Hughes is emerging as the service company most likely to beat growth expectations over the next few years, he said.

"Baker's merger with BJ Services makes sense, as it fills a meaningful gap in Baker's product and service lines," he said. "The current geomarket reorganization and the upcoming acquisition integration do provide execution obstacles for Baker over the next year, but nothing that should pose a meaningful risk."

MacKenzie said FBR maintains its outperform rating on Baker Hughes as "one of the cheapest stocks in the group."

Shares of Baker Hughes closed up 98 cents, or 2.84%, at $35.43 on Tuesday.

BJ's stock added 39 cents, or 2.43%, to close at $16.45.

Shares of Houston-based Smith International Inc. fell 54 cents, or 1.96%, to $27.03.

Zug, Switzerland-based Weatherford International Ltd.'s stock dropped 25 cents, or 1.25%, to $19.70.

Mentioned in this article:

Baker Hughes Inc. NYSE: BHI

BJ Services Co. NYSE: BJS

eBay Inc. Nasdaq: EBAY

Marvel Entertainment, Inc. NYSE: MVL

Smith International Inc. NYSE: SII

Walt Disney Co. NYSE: DIS

Weatherford International Ltd. NYSE: WFT

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