March 29 (Bloomberg) — EBay Inc. Chief Executive Officer John Donahoe is stepping up an effort to woo big retailers and challenge Amazon.com Inc. through the $2.4 billion acquisition of GSI Commerce Inc., his largest takeover yet.
The purchase will give EBay, owner of the biggest e- commerce marketplace, the chance to add brands such as Levi Strauss & Co., Toys R Us Inc. and General Nutrition Centers Inc., which are among the 180 retailers whose websites and inventory are managed by GSI.
“It wasn’t until 18 months ago that EBay even contemplated calling on larger companies or big brands,” Donahoe said in an interview from King of Prussia, Pennsylvania, where GSI is based. “Retailers of all sizes are looking for help about how they can compete in what is increasingly a multichannel world.”
Donahoe is working to reverse slumping sales growth and win back customers lost to Amazon by positioning EBay as the go-to partner for retailers wanting to streamline their online, mobile and traditional businesses. The challenge will be setting EBay apart from rivals on the technology side, such as Oracle Corp.- owned Art Technology Group and warehousing services from Amazon, said Jordan Rohan, an analyst at Stifel Nicolaus & Co.
“This is a business of great complexity,” Rohan said. “It’s one EBay may or may not have their arms around in terms of understanding the competitive dynamics.”
Cash, Debt, Divestments
GSI investors will get $29.25 a share in cash, San Jose, California-based EBay said yesterday in a statement. That’s 51 percent more than GSI’s closing price on the Nasdaq Stock Market on March 25. EBay plans to finance the deal with cash and debt.
GSI rose 9 cents to $29.29 at 10:08 a.m. New York time in Nasdaq trading today. After the announcement yesterday, the shares climbed above the offer price to as much as $29.82, indicating that some investors may be betting on a higher bid. EBay rose 52 cents to $30.86 today.
EBay plans to divest GSI’s licensed sports-merchandise business, and 70 percent of online-retail sites ShopRunner and Rue La La, because they aren’t central to its growth strategy.
Michael Rubin, GSI’s founder and CEO, will head a newly formed holding company with the divested firms. Rubin owns 4.31 million shares of GSI, or 6.4 percent of the company, according to Bloomberg data. His stake was valued at $125.9 million at yesterday’s closing price.
The acquisition agreement drew the attention of private securities-law firms, as many as 10 of which said yesterday that they were investigating whether GSI’s board considered other buyers and got the best deal for shareholders.
As part of the agreement, GSI has 40 days to solicit proposals from other potential bidders, in a so-called go-shop period, the companies said. EBay then has a right to match any superior proposal, they said. This may entice private-equity firms such as KKR & Co. and Leonard Green & Partners LP to bid, Rohan said.
“That ‘go-shop’ basically says, ‘OK, private equity, come and get me,’” Rohan said.
GSI hosts retailers’ websites from its data centers, offers marketing services to customers, and stores and ships inventory on behalf of clients.
EBay’s acquisition of GSI creates a full-service company for retailers that won’t also compete with them, Donahoe said — a reference to Seattle-based Amazon, which lets merchants sell goods through its site, next to its own rival offerings.
Many retailers have stopped selling on Amazon. In the past five years, Target Corp., Borders Group Inc., Toys R Us and Circuit City Stores Inc. yanked their products from Amazon.com, as it expanded its own line of goods.
“If you look at what Amazon has been has been doing, this can create a platform that can compete in terms of the services that they offer to sellers,” said Ken Sena, an analyst at Evercore Partners Inc., referring to EBay’s purchase of GSI.
Savings by 2013
EBay said the purchase will result in savings of about $60 million by 2013. The acquisition is expected to cut 30 cents to 34 cents a share from EBay’s forecast earnings for 2011, including costs for divesting the GSI businesses, the company said.
The acquisition is the largest for a U.S. online-services provider in the past five years, according to Bloomberg data. The buyers of more than 300 similar companies during that period paid a premium of 44 percent compared with the target’s average price over 20 trading days before the announcement.
EBay’s announced premium is about 53 percent on that basis, according to Bloomberg data. EBay is paying about 21 times GSI’s trailing 12-month earnings before interest, taxes, depreciation and amortization, close to the median of eight similar deals, according to Bloomberg data.
–With assistance from Danielle Kucera and Amy Thomson in New York. Editors: Jillian Ward, Nick Turner
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