EBay Inc. said Thursday that it plans to pay as much as $1.2 billion for control of South Korea's top online marketplace, potentially making it one of the company's largest acquisitions as it moves to expand in Asia.
San Jose, Calif.-based eBay and Gmarket Inc. said that eBay will pay $24 a share in cash to purchase all outstanding common shares and American depository shares in the South Korean company. The offer represents a premium of 20 percent over the Wednesday closing price of Gmarket's U.S.-traded shares.
The final purchase price could reach $1.2 billion if all shares are purchased, the companies said. EBay would take a stake of at least 67 percent, based on agreements reached so far with Gmarket management and shareholders and new shares the South Korean company will issue. EBay plans to finance the deal with cash it has outside the United States.
The deal comes as eBay struggles with declining earnings and revenue amid the U.S. recession and just two days after it announced plans to spin off Internet communications service Skype, which eBay acquired in 2005 for $2.6 billion, only to later write down much of its value because of a failure to find enough synergies.
EBay said it sees a bigger presence in Internet-savvy South Korea -- the world's sixth-largest e-commerce market -- as a way to tap Asia's growth.
"Asia is a very fast-moving market, fast-growing market," John Pluhowski, an eBay vice president, said in Seoul. The proposed acquisition "also allows us to build a platform for growth in Korea but also in regions throughout Asia and beyond."
Pluhowski said the acquisition would be "one of the largest since the company has been acquiring companies throughout the decade."
Besides Skype, another high-profile acquisition for eBay came in 2002 when it bought online payment service PayPal for $1.5 billion.
Ebay plans to combine Gmarket with Internet Auction Company, or IAC, the Korean online marketplace that eBay acquired in 2001. However, Gmarket and IAC will continue to operate as separate Web sites. Park Joo-man, eBay's South Korean manager, said Gmarket and IAC had a combined market share of about 36 percent in South Korea as of last year.
The deal reflects eBay's habit of expanding abroad by buying local companies that are already established in the markets it wants to enter, rather than risk cultural resistance to its U.S.-developed platforms by entering markets by itself, as it tried before in Japan before having to retreat. Ebay now has a joint online auction venture in Japan with Yahoo Japan Corp., Yahoo Inc.'s joint venture with Softbank Corp.
In a conference call with analysts, eBay Chief Executive John Donahoe credits e-commerce's growth in Korea to the popularity of escrow payments, which he said has eliminated issues of trust between buyers and sellers. EBay's IAC service has acted as such an escrow by holding on to a buyer's money and delivering it to the seller once the transaction is complete.
Over the next six to 12 months, eBay will focus on the Korean market, he said. It will then look into expanding -- most likely into Japan first, beyond its current offerings there.
A push into China sounds unlikely, though. Donahoe said eBay will continue pushing its current joint venture with Tom Online Inc.
Bob Swan, eBay's chief financial officer, said the deal will add $120 million to $130 million to eBay's 2009 sales and will cut into earnings by 4 cents to 5 cents per share for the year. When excluding certain items, it will help earnings "modestly," he said.
Swan said eBay expects to close the deal late in its second quarter, which runs through June. A special committee of Gmarket's independent directors had recommended approval of the transaction to the company's board, and Korean antitrust regulators have already given eBay preliminary approval.
South Korean President Lee Myung-bak, a former businessman, has called for more foreign investment in Asia's fourth-largest economy since taking office last year.
Some overseas companies have complained in the past that their investments and acquisitions have been hampered by anti-foreign sentiment among the public, government and media. U.S. buyout group Lone Star Funds, which purchased a South Korean bank in 2003 and has been trying unsuccessfully to sell it, has been the most vocal critic.
In a client note, Lazard Capital Markets analyst Colin Sebastian said the deal is positive for eBay, given "clear synergies" between Gmarket and IAC.