eBay Opens Bidding On Itself

(MoneyWatch)  First Skype, then StumbleUpon. What's next -- PayPal? One thing is certain: a year from now, eBay will look like a very different company.

It's unclear whether eBay will actually go through with its plan to launch an IPO for Internet telephony vendor Skype next year or simply sell it back to its owners at a better price than the pair originally offered -- negotiating such things should be a solid in-house skill. In what seems like one heck of a coincidence, eBay also sold back StumbleUpon, a social networking tool that helps Web users discover sites by a mixture of serendipity and user collaboration, back to its original owners as well.

This could be a very good thing for eBay, allowing it to focus its energies on its core business. Experts also agree that divestitures create additional value for shareholders. According to Bain & Company study of 7,315 divestitures completed by 742 companies over a 20-year period, reprinted in the Harvard Business Review:

An investment of $100 dollars in the average company in 1987 would have been worth roughly $1,000 at the end of 2007, but a similar investment made in a portfolio of the "best divestors" would have been worth more than $1,800.

But companies shouldn't sell off units under duress, which is exactly what eBay seems to be doing. eBay shares closed at $14.32 on April 15, compared to a five-year high of $58 on Dec. 31, 2004. Management can't even blame the economy or investors spooked generally by the economic climate, as it's been walloped by Amazon over the past three months -- eBay shares have risen 6.5% compared with 45% for Amazon. McKinsey & Co. consultants Lee Dranikoff, Tim Koller, and Antoon Schneidernote that, "companies should avoid making divestitures only in response to pressure and instead make them part of a well-thought-out strategy."

If eBay isn't just thrashing around like a drowning man in the deep end -- if it is indeed divesting units as part of a focused strategy -- selling off PayPal as well might make some sense. Not only might this sale make shareholders happy, it could also help PayPal hold off a looming threat from Revolution Money, which just got a huge cash infusion from Goldman Sachs and others, by giving it access to big new customers like Amazon and Google.