Amazon starts to bail out of Skype

EBay is selling a majority interest of the Internet telecom service Skype for about $2 billion, reversing a 2005 acquisition that many considered a bad deal at its inception.

EBay is selling a 65 percent stake in Skype to a group of private investment funds for $1.9 billion in cash and a $125 million note, while retaining a 35 percent stake. EBay said the deal values the company at $2.75 billion.

EBay said earlier this year that it would spin off Skype, which lets people make free or inexpensive voice and video calls with computers and cellphones, after struggling to justify its 2005 acquisition of the company for $2.6 billion.

EBay hoped the service would catch on with users of its auction site, but it never became a popular way for buyers and sellers to connect. The company took a $900 million write-down on Skype in 2007, tacitly acknowledging it had overvalued the business.

Still, Skype itself remains popular, particularly among people who regularly make international calls. According to the research group TeleGeography, Skype accounted for 8 percent of international calling traffic last year. The service can typically offer cheaper rates than regular phones by sending voice as data over the Internet just like e-mail and Web pages, reducing the need to tie up dedicated phone lines.

It is also starting to look like a more profitable business, with revenue up 25 percent to $170 million in the most recent quarter.

Skype was founded by Niklas Zennstrom and Janus Friis, creators of the music downloading service Kazaa, which had upset the recording industry.

EBay announced in April that it would spin off Skype through an initial public offering next year, though the company said it was open to alternative bids that offered attractive valuation. In a statement Tuesday, eBay CEO John Donahoe said the deal with the investor group achieves that...Skype, as a standalone company, would have the focus needed to compete and "accelerate its growth momentum"

The group of investors buying the stake includes Andreessen Horowitz, the new $300 million fund set up by Web browser pioneer Marc Andreessen. Led by the private equity firm Silver Lake, the group also includes Index Ventures and the Canada Pension Plan Investment Board. (info from The Associated Press)