EBay (EBAY)

 

 

On October 14, 2005, eBay completed the acquisition of Skype Technologies S.A., a global internet communications company. The total estimated purchase price of approximately $2.6 billion includes cash of $1.3 billion and 32.8 million shares of common stock valued at $1.3 billion, plus potential performance-based payments of up to $1.4 billion. In addition, eBay agreed to assume Skype’s stock options outstanding as of the closing date and convert them into options to acquire approximately 1.9 million shares of eBay’s common stock.

 

The unaudited pro forma condensed combined balance sheet at September 30, 2005 is presented to give effect to eBay’s acquisition of Skype as if the transaction had been consummated on that date. The unaudited pro forma condensed combined balance sheet at September 30, 2005 has been prepared by combining the historical unaudited consolidated balance sheet data of eBay and Skype as of September 30, 2005 to give effect to eBay’s acquisition of Skype using the purchase method of accounting and apply the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined statements of income of eBay and Skype for the nine-months ended September 30, 2005 are presented as if eBay’s acquisition of Skype had been consummated on January 1, 2004. The unaudited pro forma condensed combined statements of income of eBay and Skype for the nine-months ended September 30, 2005 have been prepared using the historical consolidated statements of income data of the nine-months ended September 30, 2005 and giving effect to eBay’s acquisition of Skype using the purchase method of accounting and applying the assumptions and adjustments described in these accompanying notes to the unaudited pro forma condensed combined financial statements.

 

 

The unaudited pro forma condensed combined financial statements reflect an estimated purchase price of approximately $2.6 billion, which was comprised of approximately $1.3 billion in cash and the value of approximately 32.8 million shares of eBay common stock. For accounting purposes, the stock portion of the initial consideration is valued at approximately $1.3 billion based on the average closing price of our common stock surrounding the acquisition announcement date of September 12, 2005. The preliminary fair value of the options assumed was determined using the Black-Sholes model. The estimated total purchase price of the proposed Skype acquisition is as follows (in thousands):

 

 

In addition to the initial consideration, the maximum amount potentially payable under the performance-based earn out is approximately €1.1 billion, or approximately $1.4 billion, and is payable in cash or common stock, at eBay’s discretion. The earn-out payments are contingent upon Skype achieving certain net revenue and gross margin-based targets, gross profit-based targets and active user targets. Base earn out payments of up to an aggregate of approximately €877 million, or approximately $1.05 billion, weighted equally among the three targets, is payable if the targets are achieved over any four-quarter period commencing on January 1, 2006 through June 30, 2009. Additional bonus earn out payments of up to an aggregate of approximately €292 million, or approximately $351 million, weighted equally among the three targets, would be payable if Skype exceeds the targets during the calendar year 2008. Any contingent earn out payments made will be accounted for as additional purchase price and will increase goodwill. Any contingent earn-out payments are to be paid in Euros, the Dollar amounts set forth above are based on the exchange rate of €1 to $1.20 as of October 12, 2005.