Skype Sale Sours Slightly

eBay today announced that it was taking a $1.43 billion impairment charge related to its 2005 acquisition of Skype. This includes a $900 million reduction in goodwill and $530 million paid to prior Skype shareholders, as part of an earn-out arrangement that originally had been worth up to $1.5 billion.

In other words, eBay has finally figured out that Skype isn’t worth $4.1 billion. It’s kind of like the San Diego Chargers regretting their decision to jettison Marty Schottenheimer. Don’t say that either eBay or San Diego weren’t warned by anybody. No, they were warned by almost everybody.

The eBay-Skype merger never made much sense for anyone except Skype’s venture capital investors, whose laughter rang from Luxembourg to Los Altos. Sure it might improve communications for some eBay/PayPal users, but $4.1 billion for a 3-year-old Internet phone company that had raised less than $20 million in VC funding?

Well, that was the price, and it broke down like this: $1.3 billion in cash, $1.3 billion in stock and up to $1.5 billion in performance-based earn-outs. What we’ve now learned is that while the VCs still made out like bandits on the first two tranches, some of their joy has been quelled on the earn-out.

When the merger was originally announced, Dave Cowen of Bessemer Venture Partners wrote on his blog that the sale would generate a 150x ROI for his firm (and presumably for fellow Skype backers DFJ and Index Ventures). Some back of the envelope math brings the revised ROI down to around 115x. Still a huge prize, but not quite as shiny as it was before.