Shareholder Rips EBay for Flip of Skype
(CN) - Ebay's board of directors let inside director Marc L. Andreesen usurp corporate opportunities by buying Skype on the cheap and then flipping it for a $4 billion profit, a shareholder claims in a derivative lawsuit.
Plaintiff Andrew Smukler sued the eBay board of directors, including Andreesen, in Santa Clara County Court (San Jose).
"In 2005, eBay bought Skype Luxembourg Holdings S.a.r.l., Skype Inc., Camino Networks Inc., Sonorit, and their respective subsidiaries for approximately $2.6 billion in cash and stock," the complaint states.
The purchased entities, collectively identified in the lawsuit as the "Skype Companies," create and distribute Skype's Internet-based voice, video and instant messaging services.
In April 2009, Smukler says, eBay announced its intention to divest the Skype Companies through an initial public offering. In a statement distributed at the announcement, eBay touted the companies' dramatic growth - nearly 50 percent in both revenue and registered users from 2007 and 2008 - and predicted Skype's revenue would top $1 billion in 2011, nearly double its 2008 revenue.
But in September 2009, Andreessen Investment Group preempted the planned IPO, with the acquiescence of the eBay board of directors.
"In particular, the Board approved the Andreessen Investment Group's purchase of a 65 percent interest in Skype Companies for a price of approximately $1.9 billion. The transaction valued Skype Companies at approximately $2.75 billion. A meager 6.2 percent increase over what eBay paid for Skype Companies in 2005," according to the lawsuit.
"In the press release announcing the transaction, eBay's Chief Executive Officer, defendant John J. Donahoe, assured the Company's shareholders that the deal was in eBay's best interest because it purportedly alleviated market risk of an IPO while providing a 'great valuation.'"
Smukler claims that Andreessen "enthusiastically bragged about his windfall purchase."
Andreessen's investment partner, Ben Horowitz, said that "Skype is on its way to becoming one of the most important companies in the world," according to the lawsuit.
"Defendant Andreessen and his partner's positive statements shortly proved to be more than accurate," the complaint states. "Just eighteen months later, on May 10, 2011, the Andreessen Investment Group sold Skype Companies to Microsoft Corp. for $8.5 billion; a value three times what they paid for it, netting approximately $4 billion in profit.
"The same day, defendant Andreessen admitted that when the Andreessen Investment Group originally purchased Skype Companies from eBay, he not only 'thought it would be a tremendous standalone business, [but] also knew that for Microsoft and a number of other companies Skype would be an obvious thing to buy,'" Smukler claims.
"The staggering 300 percent increase in Skype Companies' valuation in the span of only eighteen months demonstrates that the Board, at a minimum, utterly failed in its due diligence when valuing Skype Companies," Smukler says. "The sale of Skype Companies to the Andreessen Investment Group was improper as it allowed the Andreessen Investment Group to usurp the Company's business opportunities and pocket approximately $4 billion that should have gone to eBay."
Smukler says he sued to "repair the harm" the defendants caused the company, and asks the court to "implement greater controls to prevent future one-sided self-dealing at eBay."
Smukler also seeks to reform how the eBay board operates, including more participation by shareholders, restitution of ill-gotten gains, and injunctive relief on claim of breach of fiduciary duty, waste of corporate assets and unjust enrichment.
He is represented by Brian Robbins, Kevin Seely and Gina Stassi with Robbins Arroyo of San Diego.