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eBay steps up Asian expansion

By Catherine Holahan, BusinessWeek on August 14, 2008

Summary

To boost its presence in Asia and fuel growth, the auction site plans to acquire a 36.4 percent stake in Korean e-commerce giant Gmarket.

Topics

acquisition, china, commerce company, craigslist, ebay inc., payment, shareholder, strategy

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Electronic commerce giant eBay is stepping up overseas expansion efforts, making good on pledges that it would use a growing cash pile to fuel growth. San Jose-based eBay plans to acquire a minority stake in Asian e-commerce giant Gmarket, worth US$404 million as of Aug. 12.

The proposed acquisition was outlined on Aug. 13, two weeks after eBay initially sent a letter to the Korean Fair Trade Commission saying it wanted to buy the equity of the company's largest shareholder, Chairman Ki Hyung Lee. "While no definitive agreement has yet been signed or reached in connection with the discussions, a voluntary preliminary filing has been made," eBay said in a statement. Lee holds about 36.4 percent of the company's 50.05 million outstanding shares. Gmarket closed Aug. 12 at 22.18. Should eBay and Chairman Lee agree on a price, the KFTC would still have to approve the transaction.

Buying the stake would help eBay with a long-held aim to widen its beachhead in Asia. Like many U.S. companies, eBay has repeatedly tried to extend its success in the United States and Europe to Asia, where local competitors have strong ties to users.

The move may also help eBay counter competition for Asian e-commerce from Yahoo), which purchased a 10 percent stake in Gmarket in 2006 and has a 40 percent stake in the Alibaba Group, the parent company of China's largest e-commerce company.

Prelude to a Takeover?
eBay's decision fits with a strategy of acquiring stakes in companies that can expand its core shopping business to new markets. The company has an 18.7 percent stake in MercadoLibre, a leading Latin American shopping site. More than 41 percent of eBay's revenue comes from acquisitions, most notably from payments giant PayPal.

This is the second time eBay has purchased a large minority stake in an Asian company. It has a 49 percent stake Tom Online, a Chinese mobile Internet company similar to Skype. eBay does not yet have plans to acquire all of Gmarket. It has, however, used minority stakes in the past as a precursor to acquisition or attempted takeover. The company is currently battling U.S. classified site Craigslist in court over what Craigslist has characterized as a hostile attempt by eBay to turn its minority stake into an acquisition.

Users of eBay sold more than US$927 million in goods in the second quarter of 2008. The company generated US$35.7 million in transaction fee revenue from those sales. Net income, which includes money from advertising on its site and other items, was US$15.4 million for the quarter.

Earlier this year, Lorraine McDonough, eBay's mergers chief, said the company was on the lookout to make acquisitions to bolster its shopping business. It began the year with about US$5 billion on the balance sheet and has said it expects to generate an additional US$2.3 billion to US$2.4 billion in cash by the end of 2008.

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