Auction giant eBay (s EBAY) said today that it will buy GSI Commerce (s GSIC), a King of Prussia, Pa.-based provider of e-commerce and marketing services for a whopping $2.4 billion in cash and debt. The deal is part of eBay’s continued makeover from an auctions-oriented company to an e-commerce platform.
Here is the deal breakdown
- eBay is paying $29.25 a share for GSI, a 51-percent premium over GSI’s closing price on March 25, 2011.
- There is a 40-day shop clause with eBay having the option to match any superior offer.
- eBay expects the transaction to be neutral in 2011 and accretive in 2012.
- eBay will divest 100 percent of GSI’s licensed sports merchandise business and 70 percent of ShopRunner and Rue La La. These assets will be sold to a newly formed holding company, which will be led by GSI founder and CEO Michael Rubin.
- As part of the divestiture, eBay will loan the holding company $467 million and retain a 30 percent stake in Rue La La and ShopRunner. In addition, Rubin will invest additional cash of $31 million in the holding company.
This is a great outcome for GSI Commerce, which has been trying to jump-start its businesses by investing in new categories. From reports, the Rue La La integration wasn’t going too well, and the company also had the challenge of integrating sports merchandise company Fanatics, which it bought for $277 million.
From a strategic standpoint, this is absolutely the kind of move eBay should be making. Of course, we all know there is a big gap in strategic thinking and market reality. Nevertheless, the company doesn’t have much choice in order to move forward. Its original premise of being an auction-oriented company has been diluted over past decade and that business isn’t as big of a money maker as providing platform-services to large companies such as Adidas, which is a GSI client.
Big growth for eBay has come from being the provider of platform-level services for e-commerce. According to Forrester, U.S. e-commerce spending will reach $279 billion by 2015 versus $176 billion in 2010. PayPal, for instance, has turned out to be a huge winner for eBay, and is expected to see its revenues double by 2013. With GSI, eBay gets a platform that services some of the largest (and most well-known) brands and it also helps extend the reach of PayPal.
While many have been suggesting eBay should buy someone like a Groupon, the fact remains that eBay’s future now lies in becoming the plumbing for Internet commerce. With an investment in the spinout headed up by GSI Commerce’s Rubin, eBay also has one leg in the flash-sales business that may be the next big online e-commerce opportunity.
As our digital behavior is unshackled from the confines of a personal computer and shifts instead to mobile devices, new commerce opportunities are emerging. I am of the belief that mobile commerce — whether it’s payments or providing pricing information — is going to be one of the big winners of our shift to anywhere computing. What eBay can do is help big brands provide payment, mobile and e-commerce infrastructure services, and in that process, make money for its shareholders.
$2.4 billion! Then, what’s a few billion between friends? After all, eBay’s directors have never seen fit to share any of this play money with its shareholders. And, well, I suppose the Bain & Co boys have got to be seen to be doing something to stop the ongoing rot: that they have absolutely no idea of what they are doing should be patently obvious to all by now.
eBay is still making big profits, but during 2010, eBay earned $1.80 billion compared with $2.39 billion in 2009. That’s a decrease of 24%. Twenty-four percent! And for achieving this “target” eBay’s chief headless turkey got a 22% increase in his “compensation”!
The fact is, the big name brands are not making up the difference and undoubtedly they will not stay long while eBay struggles to supply even low single figure percentage sell-through rates.
It is a further fact that under the “eBafia Don” the eBay Marketplace has slowly but ever so surely been going down the toilet. I hope all you shareholders who are poor swimmers have donned your buoyancy vests, as you can be sure that the eBafia’s senior managing executives and directors all have their personal lifeboats well provisioned for the coming eBay submarine experience.
eBay would still be a risky speculative buy even at $10.
Enron / eBay / PayPal / Donahoe: Dead Men Walking.