EBay Shows Billionaire Singer It Can Run an Auction
(Bloomberg Opinion) -- In most auctions run by EBay Inc., the highest bidder doesn’t get kicked out just before the end.
But for the sale of its classified advertising business, the online marketplace passed up a leading all-cash bid from Prosus N.V. in favor of doing a deal with Adevinta ASA, a Norwegian rival dangling a seemingly less generous cash and shares proposal. The approach has been quickly vindicated.
It’s a decision that would have been harder to imagine six months ago. The lockdowns in response to Covid-19 have led to surging e-commerce demand. Since hitting a low in March, its shares have more than doubled to $58, a jump that might placate activist investor Elliott Management Corp.
The fund, led by billionaire Paul Singer, announced it had built a 4% stake in the online auction house in January 2019, setting out a range of measures — including the sale of the classifieds business — aimed at boosting the share price that had been languishing below $30. With choice disposals, EBay’s shares could touch $55 to $63, the activist said at the time. It had reached that goal even before this deal, strengthening EBay’s hand.
Prosus, worth 147 billion euros ($168 billion), was reported by Bloomberg News on Friday to have made the highest bid for the division. Over the weekend, however, EBay management seemed to have a change of heart, reportedly preferring to retain a stake and moving Adevinta into pole position.
Although Elliott may have been correct that the classifieds business — which includes Gumtree in the U.K. — was undervalued as part of EBay, the division has protected the company’s core marketplace business from competition. A sale to Prosus would have strengthened the Amsterdam-based firm’s position in Germany, EBay’s second-biggest market.
The Adevinta deal will give EBay $2.5 billion in cash and a 44% stake in the Oslo-based firm (with voting rights capped at 33%). That stake was worth $6.7 billion based on the buyer’s share price before the deal was announced. A near-40% jump in Adevinta’s stock following the announcement has pushed it to more than $9 billion.
Taking equity rather than cash also reduces EBay’s tax bill for the transaction, while giving it exposure to a company whose annual sales growth has averaged 17% over the past three years. Growth at EBay was just 5.2% over the same period.
New EBay Chief Executive Officer Jamie Iannone has done well to secure a deal that doesn’t damage the value of the shares coming as part-payment. But delivering on the market’s high expectations for this transaction will be a tall order for Adevinta. Even with the targeted cost savings of at least $100 million within three years, growth will need to accelerate if the returns are to exceed the target’s cost of capital. The deal is still a bet that the e-commerce boom will continue after the impact of the virus eases.
For now, the market is giving the benefit of the doubt. Iannone may not have held the auctioneers’ hammer for long, but he’s wielding it astutely.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.
©2020 Bloomberg L.P.