FIN501 - Module 1 Case

An IPO for Skype? Recently, the online auction giant E-Bay has announced their intention to sell their Skype division through an initial public offering (IPO). Some of you might be familiar with Skype, as they are one of the leaders in providing online video and audio conferencing services. Here is an article on this recent announcement by E-Bay: (Im going to open it for you) http://files(dot)shareholder(dot)com/downloads/ebay/676142613x0x287046/95ba0c30-057d-4a67-859c-8cac8e7be234/EBAY_News_2009_4_14_General.pdf eBay Inc. Announces Plan for 2010 Initial Public Offering of Skype SAN JOSE – April 14, 2009 – eBay Inc. (Nasdaq: EBAY) today announced that it plans to separate Skype from the company, beginning with an initial public offering that is intended to be completed in the first half of 2010. Specific timing of the IPO will be based on market conditions. "Skype is a great stand-alone business with strong fundamentals and accelerating momentum," said eBay Inc.'s President and CEO, John Donahoe. "But it's clear that Skype has limited synergies with eBay and PayPal. We believe operating Skype as a stand-alone publicly traded company is the best path for maximizing its potential. This will give Skype the focus and resources required to continue its growth and effectively compete in online voice and video communications. In addition, separating Skype will allow eBay to focus entirely on our two core growth engines—e-commerce and online payments—and deliver long-term value to our stockholders." The decision to separate Skype is based on a timeline outlined by Donahoe when he became eBay's CEO in April 2008. At the time, the company said it would spend a year evaluating Skype and its potential synergies within the eBay Inc. portfolio before making any decisions about Skype's future. Donahoe also installed a new management team at Skype led by Josh Silverman, which has driven stronger momentum and improved performance. In 2008, Skype generated revenues of $551 million, up 44 percent from 2007, and segment margins of approximately 21 percent. Registered users reached 405 million by the end of 2008, up 47 percent from 2007, and user metrics improved significantly throughout the year. The company recently announced that it expects Skype to top $1 billion in revenue in 2011, nearly doubling 2008 revenues. "Under the leadership of Josh Silverman and his management team, Skype has become a stronger business in the past year, and I expect it will be even stronger a year from now," Donahoe said. "Skype has accelerating global user growth and strong fundamentals, diversified revenue streams and is competitively positioned in a large market. We expect Josh and his team to continue delivering results as we prepare Skype for an IPO." Most recently, the release of the Skype for iPhone application has generated a great response. More than one million people downloaded Skype for iPhone in the first 36 hours after it became available—and Skype immediately became the No. 1 downloaded free iPhone application in more than 40 markets, including the U.S., UK and Japan. In just over a week, downloads passed the two million mark, putting Skype on more than 6 percent of all iPhones and iPod Touch – and adding almost half a million new Skype users. About eBay Inc. Founded in 1995, eBay Inc. connects hundreds of millions of people around the world every day, empowering them to explore new opportunities and innovate together. eBay Inc. does this by providing the Internet platforms of choice for global commerce, payments and communications. Since its inception, eBay Inc. has expanded to include some of the strongest brands in the world, including eBay, PayPal, Skype, StubHub, Shopping.com, and others. eBay Inc. is headquartered in San Jose, California. About Skype Skype is software that enables the world's conversations. Millions of individuals and businesses use Skype to make free video and voice calls, send instant messages and share files with other Skype users. Everyday, people everywhere also use Skype to make low-cost calls to landlines and mobiles. Skype is an eBay company (NASDAQ: EBAY). Access to a broadband internet connection is required. Skype is not a replacement for your traditional telephone service and cannot be used for emergency calling. Skype, associated trademarks and logos and the "S" symbol are trademarks of Skype Limited. Forward-Looking Statements and Other Matters This press release contains forward-looking statements relating to the planned initial public offering of Skype and its future performance that are based on our current expectations, forecasts and assumptions. These forward-looking statements include statements regarding the planned IPO, the anticipated continuation of Skype's growth, Skype's anticipated effective competition in its markets, and Skype's anticipated future revenues and other elements of financial and business performance. These forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected in the forward-looking statements as a result of certain risk factors, including but not limited to: the impact of the credit crisis, economic downturn and other changes in political, business and economic conditions; the regulatory, intellectual property, competitive and other risks specific to Skype; the inability to manage successfully and complete the IPO, including the ability to retain and attract key employees, the risk that the IPO of Skype may not occur in its expected timeframe or at all, and other events and other important factors disclosed previously and from time to time in eBay's filings with the U.S. Securities and Exchange Commission. eBay disclaims any obligation to update any such forward-looking statements after the date of this release. A registration statement relating to the common shares to be sold in the contemplated Skype initial public offering is expected to be filed with the Securities and Exchange Commission but has not been filed or become effective. The common shares may not be sold and offers may not be accepted prior to the time the registration statement becomes effective. This release does not constitute an offer to sell or the solicitation of any offer to buy, and there shall not be any sale of the common shares in any state in which such offer, solicitation or sale would be unlawful prior the registration or qualification under the securities laws of any such state. Media Contact: Alan Marks eBay, Inc. 408.376.7458 Carter, A. (2005, January 10, 2005). Morningstar Follows Google's Lead. Retrieved August, 2009, from http://www(dot)businessweek(dot)com/bwdaily/dnflash/jan2005/nf20050110_8372_db035.htm tm Morningstar Follows Google's Lead The investment researcher now says its long-delayed IPO will be an auction, a move apparently meant to curry favor with individuals Chalk it up as a win for the small investor. Fund and stock researcher Morningstar announced late Friday, Jan. 7, that it would employ an auction process to sell shares in its proposed initial public offering. It shouldn't come as a surprise to those who know Morningstar, which has long trumpeted itself as a watchdog for the individual investor. In a traditional IPO, investment banks distribute shares directly to institutional and other preferential clients. But in Morningstar's case, the lead underwriter -- now WR Hambrecht instead of Morgan Stanley (MWD ) -- will hold an auction to determine where to set the price and how the shares will be divvied up. In such a method, the upshot is that even the small guys can get in on the action. "It ties in with the ethos of Morningstar that everyone should have a fair shake," says IPO expert Tom Taulli of CurrentOfferings.com. "It's a fair system from the point of allocation because shares aren't given to the favored funds or individuals, but to those who bid correctly -- whether you're a small fry or a hedge fund." LOSS OF CONTROL. That egalitarian nature is exactly why the system has never caught on with Wall Street. The system gained notoriety last year when Internet search engine Google (GOOG ) took itself public in a similar way. But other than Google's IPO, in which Morgan Stanley and Credit Suisse First Boston (CSR ) were the lead underwriters, traditional investment banks continue to snub the auction process. It's no wonder. If IPO shares were commonly auctioned off, investment banks would stand to lose billions in underwriting fees. But more important, they would no longer control the allocation of precious IPO shares. Indeed that may be the reason why previous Morgan Stanley, Deutsche Bank Securities, and William Blair have all bowed out of the Morningstar deal. "They don't want to validate the process to see it become a trend," says Taulli. Still, the move couldn't come at a better time for Chicago-based Morningstar. Its reputation as an independent voice in the investment world has been called into question lately, following probes by regulators. Last summer, the Securities & Exchange Commission launched an investigation relating to inaccurate data Morningstar published on a mutual fund. Then in December, New York Attorney General Eliot Spitzer began looking into Morningstar Associates, a group that provides advice and consulting services to retirement plans. Spitzer's subpoena sparked speculation that Morningstar accepted fees from mutual-fund companies for recommending their products to 401(k) plans. MARQUEE DEAL. Neither issue has been resolved. But CEO and Chairman Joe Mansueto told BusinessWeek late last year that the company continues to cooperate with regulators. "We have no incentive to favor one fund over another," Mansueto said in late December. "We remain committed to investors." Morningstar declined to comment about the IPO for this story, citing the quiet period before the offering. But the recent auction announcement may signal that the IPO is forthcoming. Morningstar first announced its intention to go public back in May, 2004. But the deal has remained on the shelf for months. The regulators' actions may have played a part in the delay. But it's also possible that the hangup relates to Morningstar's desire to employ the unorthodox auction method for going public. Whatever the reason, the auction move is a major public-relations win for Morningstar. It's also a big coup for Hambrecht, which has long been a champion of the auction process. However, it has mainly been involved in only small deals, such as the IPOs of RedEnvelope (REDE ) and Overstock.com (OSTK ), where it was the lead manager. But Morningstar is a marquee deal for Hambrecht, one that could potentially bring the auction process into the mainstream. Of course, Hambrecht may not want to start celebrating just yet. Wall Street will still have the last word. Carter is a correspondent in BusinessWeek's Chicago bureau So far the IPO has not happened, although E-Bay did sell a majority of their shares to other companies. An IPO is still something that might happen in the future. The possibility of a future IPO is the focus of this assignment. Do some reading up on the online IPO process used by Google and Morningstar using the CyberLibrary and internet search engines. This is an untraditional approach to the IPO, but may or may not be the best approach for a Skype IPO. Here is one article to get you started: After doing some research both on Skype and on online auction IPOs, write a four page paper answering the following question: What type of IPO should E-Bay use to take Skype public - a traditional IPO or an online auction? Some issues to consider in answering the above question include: A. The type of investors Skype likely to attract B. The lessons learned from Google and Morningstar from their auction IPOs C. Costs and risks of each type of IPO Case Assignment Expectations In the grading of your assignment, you will be assessed on the following items: 1. The use of multiple references beyond just the two readings mentioned above. Those links are just to get you started, but your ability to do your own research beyond these two articles will be assessed. 2. Your paper from beginning to end on the precise assignment question. No need for lengthy background information, focus on what type of IPO should be used and why you feel this way. Your very first paragraph should include a direct answer to the assignment question, with the body of your paper focused on defending your answer. See the attached Tips for Good Writing for mroe detail on these expectations. Tips for Good Writing When writing a narrative academic paper there is a basic style you need to comply with. Along with the TUI style guide you have in your introductory information, I have certain expectations. There is more to writing than simply formatting the document properly and making your footnotes conform to a specific standard. There is more to writing than simply meeting the MLA guide to style and having decent grammar and spelling. Learning the basics of academic writing will give you the foundation you need to create a successful dissertation or published article. The methods presented below are universal and fundamental. These principles are true for good writing in any form. But the requirements are basic. In time you will outgrow this simple formula. But for now, I want to make sure that we can meet the basic standards for clarity of expression and rigor in argumentation. A good paper has three parts: I. Introduction II. Body III. Conclusion This sounds simple, I know, but it is rarely presented the first time. The old saying "tell me what you are going to say, say it, tell me what you said" is the hallmark of basic writing skills. Now let's take each element in turn. I. Introduction: In the introduction you need to have three elements: the problem, your answer, and how you will prove it. First, tell me what the problem is; what are we talking about? I need to know the surrounding issue. Second, what is your answer to the question? In one sentence, answer the question you were asked. This is the most important part of your paper. Everything else depends on it. You cannot ask yourself too many times, what is my point? Everything in your paper is there for one reason only, that is, to prove that your thesis is correct. Third, tell me how you will prove that your point is correct. In order of importance, tell me what your major reasons are for believing your thesis to be true. At the end of your introduction I should be able to stop, and know what the problem is, what your answer to the problem is, and how you are going to prove it. II. Body In the body of your paper I want you to argue for why your answer to the question is correct. Discuss one point at a time and explain each point thoroughly. Use the material you have researched, facts you have compiled, personal experience, speculation if you must. I want to see you prove your answer to be correct. One point per paragraph! In each paragraph you will have a thesis statement at the outset. What is the point of that paragraph? The point of each paragraph (you may have more than one paragraph per point, although not the other way around) must be clear in how it proves your thesis to be correct. A good paragraph has three elements: the point; the explanation; the conclusion. In each paragraph I want to know what point you are making, you must explain it thoroughly, and say how it proves your thesis to be correct. Detail your explanations and clearly show how they prove that you are right. III. Conclusion A good conclusion is a simple matter. Simply sum up how you proved your thesis to be correct. Follow these basic guidelines and you will produce a good basic paper. Once you have mastered the fundamental style of argument we can work on making you the next Marcel Proust. Be patient! 3. Your paper should be four pages in lengths. 4. Your paper should include proper referencing, both with a bibliography and references within your text.