eBay To Sell StubHub To Viagogo

On November 25, eBay Inc (NASDAQ: EBAY, $35.52, Market Capitalization: $28.9 billion) announced that the Company has entered into a definitive agreement to sell its StubHub (online ticket exchange business) to viagogo for a cash purchase price of $4.05 billion. The sale is expected to close by the end of the first quarter of 2020, subject to regulatory approval and customary closing conditions.

The Company reportedly reviewed its current strategies and portfolio, concluding that the sale of the business was the best path forward for both eBay and StubHub as the transaction is expected to maximize longterm value for eBay shareholders. Goldman Sachs & Co. LLC is acting as financial advisor to eBay. Wachtell, Lipton, Rosen & Katz and Quinn Emanuel are acting as legal advisors to eBay. J.P. Morgan is acting as sole financial advisor and sole underwriter of the committed debt and preferred equity financings for viagogo. Skadden, Arps, Slate, Meagher & Flom LLP and Kirkland & Ellis LLP are acting as legal advisors for viagogo.

In our previous Potential Spin report dated January 30, we had outlined that the activist Investors are urging eBay (EBAY) to separate StubHub and Classifieds Businesses. The proposal (similar to a classical activist playbook) included asset break-up, cost-cutting initiatives and a return of incremental cash to shareholders through buyback & higher dividends.

Deal Rationale

Despite its remarkable history as one of the world’s largest e-commerce platforms, eBay as a public-company investment has under performed both its peers and the market for a prolonged period of time. StubHub and eBay’s portfolio of Classifieds properties represent high-value, strategic assets that are worth meaningfully more than the value currently being ascribed to them as part of eBay. Incidentally, StubHub’s sale price is at the mid-point of the range ($3.5-4.5 billion) that Elliot had assigned it as against just ~$2.2 billion if it was capitalized at eBay’s consolidated valuation multiple at that time. Apart from unlocking substantial value, the separation will enable eBay’s management team to refocus its efforts on the core Marketplace business, which would allow eBay to grow faster and deliver meaningful operational improvements. It is worth noting that the separation has been a result of pressure from activist investors who have been advocating asset break-up, among other things. In September, eBay chief executive Devin Wenig stepped down after disagreements with the company’s board, and the company included representatives from Elliott and Starboard.

Update on Operating Review and 3Q19 Results

On October 23, the Company provided an update on operating review, which included a multi-year plan for operating efficiency, and also the role and value of StubHub and Classifieds in its portfolio to determine the best path forward. On the earnings call, the management reiterated that they expect to provide an update on StubHub before the next earnings release. However, for the Classifieds business, the Company is considering long term options and doesn’t plan to make an immediate announcement. The Company also announced financial results for 3Q19 on October 23. eBay reported revenue of $2.6 billion, remaining fl at Y-o-Y, on an asreported basis. The Company reported Gross merchandise volume (GMV) of $21.7 billion, down 4%YoY on an as reported basis. In 3Q19, the Company reported diluted EPS of $0.67. eBay generated $1.0 billion of operating cash fl ow from continuing operations in 3Q19 while the cash and cash equivalents and non-equity investments stood at $4.2 billion as of September 30, 2019. The Company declared a quarterly dividend of $0.14 per share in 3Q19 and repurchased approximately $1.0 billion of common stock (or 25 million shares) in 3Q19.

Company Description

eBay Inc (Parent)

Founded in 1995 in San Jose, California, eBay Inc. (NASDAQ: EBAY) is a global commerce leader which includes Marketplace, StubHub and Classifieds platforms. eBay connects millions of buyers and sellers around the world. Marketplace platforms include an online marketplace located at www.ebay.com, its localized counterparts, and the eBay mobile apps. StubHub platforms include online ticket platform located at www.stubhub.com, its localized counterparts, and the StubHub mobile apps. It connects fans with their favorite sporting events, shows, and artists and enables them to buy and sell millions of tickets whenever and wherever they want. Classifieds platforms include a collection of brands such as mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen etc., offering online classifieds around the world, which helps people to find whatever they are looking for in their local communities. In 2015, eBay completed its tax-free spin-off of PayPal business. In FY18, eBay enabled $95 billion of gross merchandise volume and reported revenue of $10.7 billion.

Classifieds (Spin-Off)

A world leader in online classifieds, eBay Classifieds helps people to list their products and services, generally for free; find whatever they are looking for in their local communities and trade at a local level. Classifi eds platforms include a collection of brands such as mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen etc. It offers a personalized classifieds experience and focuses on expanding value proposition by leveraging data and analytics to improve customer relevance and growing the classifieds opportunity on mobile. On Classifieds platform, the Company monetizes its business primarily through advertising. In FY18, Classifieds reported revenue of $1.0 billion.

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