Seeking to strengthen its leadership in Korea and expand its Asian operations, US-based online auction titan eBay Inc. (EBAY) on Wednesday, announced that it has signed an agreement to acquire South Korean online retailer Gmarket.
Under the terms of the agreement, eBay will pay $24.00 per share in cash for all outstanding Gmarket common shares and American Depositary Shares, for a total purchase price of up to $1.2 billion assuming all outstanding shares are tendered. As of April 15, 2009, the consideration of $24.00 per share was equivalent to 31,767 Korean won per share.
eBay already operates its own South Korean unit, Internet Auction Company, or IAC, which it acquired in 2001. According to the terms of the deal, eBay will combine Gmarket's operations with IAC, while maintaining separate sites. The combined operations will be jointly lead by Jooman Park, president of IAC and Young Bae Ku, president of Gmarket.
Korea is the world's sixth-largest e-commerce market behind the United States, Germany, United Kingdom, China and Japan. eBay's leadership in the South Korean online shopping market is expected to be further strengthened by its combination with Gmarket.
Earlier in the week, eBay announced its plans to spin off its internet phone subsidiary Skype via an IPO in order to refocus its efforts on its core e-commerce and online payment businesses. The IPO is expected to be completed in the first half of 2010. eBay acquired Skype Technologies SA, for about $2.6 billion in October 2005.
eBay, which has more than 86 million active users, generated $60 billion of gross merchandise volume worldwide in 2008 and revenue of $5.6 billion. IAC generated $2.2 billion of gross merchandise volume in 2008 and revenue of $161.2 million at an assumed exchange rate of 1262 KRW per USD. Gmarket, which has over 10 million users in South Korea, generated $3.2 billion of gross merchandise volume and revenue of $220.8 million in 2008 at the same assumed exchange rate.
The transaction is expected to close in the second quarter of 2009. eBay needs to acquire least 67% of Gmarket to satisfy the minimum tender condition to be successful in its bid. Interpark Corporation and its chairman, Ki Hyung Lee, current holders of approximately 34% of the outstanding shares of Gmarket and Yahoo, which owns a 10% stake in Gmarket, have already agreed to tender their stake.
eBay noted that the deal creates strong operational synergies and offers more opportunities for sellers. The e-commerce company also expects the combination with Gmarket to expand its Asian operations.
Asia has been a tough battle for eBay. The US based online auction company, which entered Japan in 2000, pulled out in 2002, unable to withstand the strong competition from Yahoo's online auction service in that market. In 2006, eBay closed its auction site in China as it was tough to crack, and entered into a joint venture with Chinese company Tom Online Inc., taking a 49% stake.
According to eBay, the combination with Gmarket also provides the necessary support for Korean sellers who seek access to eBay's global network. By joining eBay's Cross Border Trade program, Korean small and medium sized businesses can export their products to buyers in foreign countries, eBay said.
The transaction also enhances the ability of the two e-commerce companies to serve complementary consumer segments because Gmarket focuses on fashion-oriented categories, while IAC focuses on computers, electronics and sports. Females aged 20-29, representing Korea's fastest-growing online segment, comprise more than 21% of Gmarket's consumer base. Males aged 30 and over comprise IAC's biggest consumer segment.
The Board of Directors of Gmarket has voted unanimously to approve the transaction and recommends that Gmarket security holders accept the offer. Following completion of the tender offer, shares of Gmarket not purchased by eBay will remain outstanding and will be delisted from the Nasdaq stock market.
EBAY which has been trading in the range of $9.91 - $32.67 over the last 12 months, closed Wednesday's trade at $14.32, down 0.42% on a volume of 24 million shares.
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