EBay has made a bid for GSI Commerce for USD 2.4 billion. The price represents a 51 percent premium over GSI’s closing share price on 28 March, but GSI can, under the term of the agreement, go shopping elsewhere to find a higher bid, with EBay having the right to match the potential superior proposal. If eBay’s bid succeeds, the online auction site plans to divest a number of business units, which would bring in USD 0.6 billion. The acquisition will be EPS neutral this year and accretive in the following years. The acquisition is expected to achieve synergies in 2013 at USD 60 million. Aside from customers, the acquisition will bring eBay important assets, such as order management systems, fulfillment (including seven fulfillment centers), shipping and four call centres.
After its unfortunate adventure with Skype, in which eBay also has a minority holding, the online auction site is now looking to another line of operations: a kind of wholesale situation, where customers can purchase e-commerce solutions. GSI already boasts of more than 180 customers in 14 different segments. This is a much safer choice than Skype, because GSI’s business is more similar to that of eBay itself. The merger could be said to come in the wake of the wake of Amazon, which offers similar wholesale services. But here, however, there is not real "change in control, no real change among competing parties. eBay can assure GSI customers that it is not in competition with them (something we know from the telecom sector, where the regulated incumbents by definition compete with their wholesale customers, until a 'structural separation' comes between them). But the question is whether that is absolutely correct, because eBay Marketplaces does compete on the e-commerce market, and not only with auctions.
It is also important that eBay set up a third pillar, alongside Marketplaces (auctions, etc.) and PayPal (payments) because recent acquisitions (such as app developer Critical Path) have been too small for the company to broaden its base. GSI brings a number of large customers with it, such as Toys'R'Us, Dell, Timberland, Boots, RadioShack and Mattel, all forming an important addition for eBay. This creates all sorts of cross selling possibilities, such as the use of PayPal by GSI customers.
GSI expects 2013 revenues at USD 1.1-1.3 billion, with a margin at 19-21 percent. This translates into a turnover of USD 7-8 billion for Marketplaces (with a margin at 38-42%) and sales at USD 7.6 billion for PayPal (margin at 24-26%). The GSI transaction wil bring down margins in the short term but could become an important business in the longer term- if eBay manages to properly integrate its new acquisition. That could be enough to erase the Skype misadventure from memory. Perhaps, more importantly, the deal would show eBay not being lured into a costly acquisition at the hip "daily deals" market, where valuations go through the roof and where the long-term success is far from assured due to sharp competition. In December 2010, eBay bought brands4friends for USD 200 million, but it kept its saved up billions for the less less risky acquisition of GSI.
