eBay Makes $1.2B Proposal for Korea’s Gmarket

eBay is making a play for one of the most wired nations in Asia with aUS$1.2 billion acquisition offer for South Korea’s Gmarket, thecountry’s largest online market.

Under the terms of the proposal,eBay will make a cash tender offer of $24 per share for alloutstanding Gmarket common shares and American Depositary Shares. If the deal is secured, eBay will combine Gmarket’s operations with itsexisting Korean marketplace business, Internet Auction Co., whilemaintaining separate sites.

Jooman Park, president of IAC, and YoungBae Ku, president of Gmarket, will jointly lead the combination of IACand Gmarket and will manage the integration of the two e-commercecompanies.

The deal creates “strong operational synergies,” John Donahoe, eBay’spresident and CEO said, as well as more opportunities for sellers anda chance for eBay to target “complementary consumer segments.”

A Lot of Paper

The deal appears likely to go through — Gmarket’s Board ofDirectors has voted unanimously to approve it, recommending thatGmarket security holders accept the offer.Also, a special committee of Gmarket’s independent directorsrecommended approval of the transaction to Gmarket’s board ofdirectors.

The antitrust due diligence on both sides appears to have beenthorough, which also bodes well for the deal’s successful conclusion.Preliminarily, the Korean Federal Trade Commission has indicated thatthe deal can go through under certain conditions, letting eBay startacquiring the requisite 67 percent stake in Gmarket, Raymond Van Dyke, apartner in Merchant & Gould, told the E-Commerce Times.

For its part, Gmarket “had to produce a huge volume of material in alimited amount of time to deal with the U.S. legal and regulatoryissues,” Robert Robbins, head of Pillsbury’s national corporate andsecurities practice, told the E-Commerce Times. Pillsbury representedthe special committee of independent directors on Gmarket’s board.

“It’s a sizable deal,” he added, noting it will be the second-largestM&A in Korea this year.

International Growth

The deal makes sense for eBay, which has been exploring ownershipoptions in the online market for the better part of a year. With growth in theU.S. seemingly on hold for the foreseeable future, international expansion –especially in a country blanketed with high-speed access and consumersalready predisposed to e-commerce — is generally viewed as a smart move.Indeed, the company earns at least half of its revenues overseasalready.

eBay has also said it expects the combination with Gmarket to providea potential platform for further expansion within Asia. For a Gmarketcustomer, it could provide an easy export platform — via eBay’s CrossBorder Trade program.

“With Korean consumers among the most heavy Internet users in theworld, it is a no-brainer that eBay, as well as other Internet-savvycompanies, are keenly interested in acquiring a stake in that market,”Van Dyke said.

A Focus on Core

The transaction can also be viewed as a return to basics on the partof eBay, Van Dyke continued.

“Yesterday, eBay decided to spin off Skype and their VoIP telecomopportunities, and today they seek to acquire Gmarket in Korea,” hesaid.

“Synergies” had also been cited in eBay’s ill-fated acquisition of Skype– but this particular deal appears to line up far easier.

Gmarket’s focus is fashion-oriented categories; IAC’s focus is oncomputers, electronics and sports — the complementary consumersegments to which Donahoe referred. Females ages 20 to 29 comprise morethan 21 percent of Gmarket’s consumer base. Males ages 30 and overcomprise IAC’s biggest consumer segment. As noted by eBay’s CEO, thereare likely to be synergies between eBay’s existing subsidiary there,the Internet Auction Company it acquired in 2001, and Gmarket, Van Dykesaid. Besides being an “East meets West” story, he remarked, it’s a”girl meets boy” match-up as well.

Gmarket is geared moretoward feminine fashion items, and IAC markets to male-dominated categorieslike sports, computers and electronics, Van Dyke observed.

The transaction is expected to close in the second quarter of 2009.Shares of Gmarket not purchased by eBay will remain outstanding andwill be delisted from NASDAQ. There will not be an active tradingmarket for outstanding Gmarket shares following completion of theoffer.

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