THE DEAL: eBay Buys GSI for $2.4B in Bid for Large Retailers

Date: 29-Mar-2011

by Mary Kathleen Flynn

While eBay Inc. may be best known as an online auction house where individuals buy and sell goods, the San Jose, Calif., company aspires to loftier goals, setting its sights on becoming "the leading strategic global commerce partner of choice for retailers and brands of all sizes." To that end, eBay is spending $2.4 billion to acquire GSI Commerce Inc., a King of Prussia, Pa., provider of e-commerce and interactive marketing services that counts among its customers Aéropostale Inc., Donna Karan Co. LLC, Adidas AG, Nautica Apparel Inc. and Toys "R" Us Inc.

"GSI has long-standing commerce services relationships with 180-plus top brands and retailers," eBay CEO John Donahoe said in a conference call with investors Monday. "As we know from our PayPal business, those retailers need help with more than just handling payments. They need help with mobile commerce and social commerce, and when we looked at who is providing that help today, it's GSI."

To extend its reach into brand-name retailers, eBay is paying $29.25 a share, a 51% premium over GSI's March 25 closing price and a 47% premium to the average closing price of GSI common stock over the 30 trading days prior to March 28. The company projects that the transaction will deliver synergies of approximately $60 million by 2013.

The deal is an aggressive move by eBay to compete more directly with Amazon.com Inc. By acquiring GSI, eBay becomes a marketer and technology service provider for more than 180 retail brands.

As part of the transaction, eBay will divest 100% of GSI's licensed sports merchandise business and 70% of ShopRunner Inc. and Rue La La.

These assets will be sold to a newly formed holding company, which will be led by GSI founder and CEO Michael Rubin, who will invest $31 million in cash in the new enterprise. EBay will loan the holding company $467 million for a 30% stake in Rue La La and ShopRunner.

Under the terms of the merger agreement, GSI may solicit acquisition proposals from third parties for a 40-day go-shop period through May 6.

The acquisition, which will be financed with cash and debt, is expected to close in the third quarter, pending regulatory and GSI shareholder approval, as well as other customary closing conditions.

EBay's M&A track record remains uneven. Its 2002 acquisition of PayPal Inc. for $1.4 billion seems to be thriving. But its 2005 purchase of Skype Technologies SA for $2.6 billion never panned out, and in 2009 the asset was sold to a Silver Lake-led consortium in a $2.75 billion deal.

Goldman, Sachs & Co. and Peter J. Solomon Co. are acting as financial advisers to eBay. EBay's legal adviser on the deal is Dewey & LeBoeuf LLP, led by Keith Flaum and Jane Ross. Morgan Stanley is acting as financial adviser to GSI. Legal adviser to GSI is Morgan, Lewis & Bockius LLP, led by Richard Aldridge. Legal adviser to the special committee of the GSI Commerce board of directors is Davis Polk & Wardwell LLP, led by Daniel G. Kelly Jr. and Julia K. Cowles. Sullivan & Cromwell LLP is acting as legal adviser to Michael Rubin.

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