eBay Hangs Up on Skype

eBay (EBAY) shook up the management of its Skype Internet phone business and set a $1.43 billion charge to write down the value of the unit.

eBay said Niklas Zennstrom, who co-founded Skype in 2003 and sold it to eBay two years later in a deal valued as high as $4.3 billion, will become nonexecutive chairman of Skype's board. Henry Gomez, an eBay executive who had been Skype's president, will return to eBay as senior vice president for corporate affairs, eBay said in a press release Monday.

Michael van Swaaij, eBay's chief strategy officer, will become acting CEO until a permanent successor is found. Russell Reynolds Associates is conducting the search for Zennstrom's replacement.

eBay said the third-quarter charge will include a payment of $530 million in so-called earnouts tied to Skype's performance. The rest of the charge reflects asset impairment, eBay said.

Skype was acquired by eBay in September 2005 for $2.6 billion in cash and stock. The deal specified that Skype's former shareholders could get an additional $1.7 billion based on the company's performance levels in 2008 and the first half of 2009.

eBay said the $530 million payment "is reasonable given the progress and anticipated rapid growth of Skype's active user base."

The news comes as the once-hot Internet phone sector is hit by slowing growth and intensifying competition from telcos like Verizon (VZ) and cable companies like Cablevision (CVC). Skype rival Vonage (VG) saw its shares plunge last week in the latest of a series of costly legal setbacks.

Shares fell 2 cents to $39.

>To order reprints of this article, click here: Reprints