eBay buys Gmarket in Korea for $1.2 billion

eBay will combine its Internet Auction Company business in Korea with Gmarket to extract synergies, but will operate the two e-commerce sites separately after the deal.

US online auction site eBay will acquire control of Korean e-commerce business Gmarket for up to $1.2 billion. eBay will combine Gmarket with its existing online marketplace in Korea, Internet Auction Company (IAC), although it intends to maintain the two sites as distinct entities.
eBay said on Thursday that it will offer $24 per share for all of Gmarket's ordinary shares and American depositary shares. The total outlay will be $1.2 billion, assuming all outstanding shares are tendered.
eBay has already achieved a simple majority representing 50.1% of Gmarket's shares as Gmarket's controlling shareholders, Interpark Corporation and chairman Ki Hyung Lee, have agreed to tender their shares. Some other employee shareholders are also tendering their shares and yesterday Yahoo announced it will tender its 10% stake.

The deal allows Interpark to enhance focus on its core business, while exiting its investment in Gmarket at a healthy valuation. Gmarket's shares have been rising over the past few weeks on speculation of a deal. The price of $24 represents a 51% premium to the three-month average price before the speculation started driving the price up.
The top five institutional shareholders in Gmarket on December 31, 2008 were Capital International, Credit Suisse, J.P. Morgan, Artisan Partners and Maverick Capital. Capital owns around 8%.
eBay, the largest US online marketplace, intends to achieve its target shareholding through a tender offer, topped up by new shares issued by Gmarket. The deal is conditional on eBay's tender cornering a majority of the outstanding shares and ADSs of Gmarket, Korean antitrust clearance and other customary closing conditions and is expected to close in the second quarter of 2009.
Because antitrust approval was going to be critical to the deal, the firms sought approval from the Korea Fair Trade Commission shortly after they began talks last year, submitting the deal for approval of a minority stake.

eBay is advised on the purchase, which has been speculated to be in the making for the past few years, by Morgan Stanley.

Gmarket, which was founded in 2000, is younger than IAC, but has grown larger than IAC, with $3.2 billion of gross merchandise volume in 2008 and revenues of $220.8 million for the same year.
eBay intends to delist Gmarket once the tender offer is successfully completed. Gmarket listed on Nasdaq in June 2006 after an IPO led by Goldman Sachs and Cowen & Company that was covered 15 times. It priced at $15.25 per ADS, which represented a multiple of 65.5 times trailing 2006 earnings but only 24 times forward 2007 earnings, which captures well the exponential growth Gmarket has been showing since it went into business. Investor excitement was also piqued by the news that Yahoo took a stake in the company a couple of weeks before the IPO as part of its efforts to expand its operations in Asia.

Interpark and Lee are advised by Nomura.

eBay had around 86 million users worldwide in 2008 and posted $5.6 billion of revenue on around $60 billion of transactions. In Korea, the world's sixth-largest e-commerce market, eBay hitherto operated through IAC, which it acquired in 2001.
IAC generated $2.2 billion of gross merchandise volume in 2008 and revenues of $161.2 million.
eBay said in a written statement the combine will "offer benefits for Gmarket and IAC sellers and enhanced experiences for buyers." eBay also expects the combination to provide a platform for further expansion within Asia.
Earlier in the week, eBay announced plans to spin off its internet phone subsidiary Skype Technologies via an IPO to enhance focus on its core e-commerce and online payment businesses. eBay acquired Skype for about $2.6 billion in October 2005 and the announcement is largely seen as an admission that the acquisition has not proven to be a good strategic fit.
eBay shares closed at $14.32 on Nasdaq on Wednesday. Gmarket gained 3.2% to $19.96, moving towards the offer price, probably on account of arbitrageurs getting active in the stock on the open offer announcement.

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