EBay to buy GSI in $2.4 billion deal

By Reuters
Posted March 28 at 11:38 a.m.

EBay plans to buy e-commerce company GSI Commerce for $1.96 billion in cash in a bid to draw more buyers and sellers to its online marketplaces and win more business from large store chains.

EBay said on Monday it offered GSI shareholders $29.25 per share, a 50.9 percent premium over its closing price on Friday. Shares rose by the same amount in Monday’s Nasdaq trading. EBay shares were down 2.7 percent.

GSI owns Web businesses such as Rue La La, which offers one-day-only Web deals to its members, and ShopRunner, a members-only online shopping service that offers free shipping. It also provides retailers with technology, payment processing and customer care services for their e-commerce sites.

For eBay, GSI is attractive because of its expertise in taking customer orders, managing them, and sending them out, an area in which online retail rival Amazon.com excels, analysts said.

“It’s one of the few fulfillment operations that could rival Amazon,” Colin Gillis, analyst BGC Partners, said. “Amazon is fulfilling its third-party sellers more and more. This is the battle for third-party sellers. Ebay is all third- party sellers.”

But GSI’s services are also a way for eBay to woo large retailers looking to beef up their electronic capabilities, eBay Chief Executive John Donahoe told analysts on call.

“What GSI Commerce in essence does is enable large sellers, large retailers and brands, to meet buyers successfully and effectively. So, GSI fits squarely in our strategy,” Donahoe said.

As part of the deal, eBay will sell off GSI’s licensed sports merchandise business and 70 percent of ShopRunner and Rue La La, which will all become part of a new holding company run by GSI’s founder and Chief Executive Michael Rubin.

EBay will lend Rubin’s new company $467 million. Including the loan, eBay said the deal was worth $2.4 billion.

EBay said those business were not important to its long-term growth strategy.

EBay said the acquisition, expected to close in the third quarter of 2011, would have little effect on its fiscal 2011 adjusted earnings forecast, and would add to 2012 earnings. The deal would hurt 2011 net income by 30 cents to 34 cents per share, the company said.

GSI has until May 6 to solicit bids from other parties during the so-called “go shop” period.

EBay has pointed to its PayPal payments processing unit as its prime growth driver in recent years.

But it is also trying to spark growth at its more familiar marketplaces unit, a high-margin business that connects online buyers and sellers.

EBay shares were down 85 cents at $30.85 and GSI was up $9.68 at $29.06 on Monday on Nasdaq.

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