eBay to Sell Most of Skype Stake -- How Unsurprising

Here's an old truism in business: the big majority of mergers and acquisitions never deliver the value they promised. That's not anecdotal, but the finding of one study after another, usually indicating that upwards of three-quarters of M&A activity doesn't deliver to shareholders. So the fact that eBay has announced that it's selling Skype to an investor group for $2.75 billion isn't a surprise, other than as an admission that the deal had never been a good idea.

Another small surprise is that eBay seems to be making an overall profit on the deal. Originally eBay contracted to pay $2.6 billion, half cash and half stock, for the company. But unlike eBay's purchase of PayPal, where there were at least affiliated interests via online commerce, Skype was really an unrelated business, unless management wanted to argue that it would facilitate telephone communications between buyers and sellers. As if.

What the Skype acquisition originally signified was another tech company feeling its oats and wanting to prove itself as a Big Player, which speaks to one of the major reasons that acquisitions go awry: corporate ego. And corporate ego is often related to another questionable reason on the acquirer's side for M&A: As a company gets larger in revenue, its top executives can argue that they should be paid more. Did CEO pay go up after the acquisition in 2005? First, to be fair, there may well have been other factors and there's no what to know from the outside how much of this was the larger size of the company. However, in 2005, CEO Meg Whitman made total compensation, including at-the-time present value of stock options granted in that year, of $9.99 million. In 2006, the number jumped to $15.74 million. In 2007, it was down to $13.87 million -- less, but not at the pre-Skype levels. And in 2008, CEO John Donahoe, who took over after Whitman left, was getting $13.19. So you could argue that the acquisition helped create some sort of long term boost to pay. We'll see what happens as eBay slims down.