eBay bids high for GSI

Contact: Ben Kolada

In its largest deal in the past half-decade, eBay is set to acquire e-commerce vendor GSI Commerce for $2.4bn. The company hasn’t made such a move since September 2005, when it forked over $2.6bn for VoIP provider Skype. And while hindsight shows that eBay certainly overpaid for that property, on an equity value basis, this transaction actually carries the highest bid eBay has offered. (We would also note that this pending acquisition is the largest Internet deal since February 2008.)

Although the deal represents a fairly standard price-to-sales valuation, it carries a hefty share price premium that makes the 40-day go-shopping clause more of a formality than anything else. The $29.25-per-share cash offer values GSI at 1.6 times its trailing sales, in line with other public takeovers, but it represents a premium of 51% over GSI’s closing share price on Friday and the highest price its shares have seen since July 2010. That’s more than twice the premiums eBay offered for Gmarket in April 2009 and Shopping.com in June 2005. The valuation is actually slightly higher when considering that eBay isn’t interested in the entire company. As per terms of the deal, which is expected to close in the third quarter, eBay will divest GSI’s licensed sports merchandise business and 70% of its ShopRunner and Rue La La assets to a newly formed company led by GSI founder and CEO Michael Rubin.