eBay Makes $1.2B Proposal for Korea's Gmarket

eBay (Nasdaq: EBAY) is making a play for one of the most wired nations in Asia with a US$1.2 billion acquisition offer for South Korea's Gmarket, the country's largest online market.

Under the terms of the proposal, eBay will make a cash tender offer of $24 per share for all outstanding Gmarket common shares and American Depositary Shares. If the deal is secured, eBay will combine Gmarket's operations with its existing Korean marketplace business, Internet Auction Co., while maintaining separate sites.

Jooman Park, president of IAC, and Young Bae Ku, president of Gmarket, will jointly lead the combination of IAC and Gmarket and will manage the integration of the two e-commerce companies.

The deal creates "strong operational synergies," John Donahoe, eBay's president and CEO said, as well as more opportunities for sellers and a chance for eBay to target "complementary consumer segments."

A Lot of Paper

The deal appears likely to go through -- Gmarket's Board of Directors has voted unanimously to approve it, recommending that Gmarket security holders accept the offer. Also, a special committee of Gmarket's independent directors recommended approval of the transaction to Gmarket's board of directors.

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

For its part, Gmarket "had to produce a huge volume of material in a limited amount of time to deal with the U.S. legal and regulatory issues," Robert Robbins, head of Pillsbury's national corporate and securities practice, told the E-Commerce Times. Pillsbury represented the special committee of independent directors on Gmarket's board.

"It's a sizable deal," he added, noting it will be the second-largest M&A in Korea this year.

International Growth

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

eBay has also said it expects the combination with Gmarket to provide a potential platform for further expansion within Asia. For a Gmarket customer , it could provide an easy export platform -- via eBay's Cross Border Trade program.

"With Korean consumers among the most heavy Internet users in the world, it is a no-brainer that eBay, as well as other Internet-savvy companies, 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 part of eBay, Van Dyke continued.

"Yesterday, eBay decided to spin off Skype and their VoIP telecom opportunities, and today they seek to acquire Gmarket in Korea," he said.

"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 on computers, electronics and sports -- the complementary consumer segments to which Donahoe referred. Females ages 20 to 29 comprise more than 21 percent of Gmarket's consumer base. Males ages 30 and over comprise IAC's biggest consumer segment. As noted by eBay's CEO, there are likely to be synergies between eBay's existing subsidiary there, the Internet Auction Company it acquired in 2001, and Gmarket, Van Dyke said. Besides being an "East meets West" story, he remarked, it's a "girl meets boy" match-up as well.

Gmarket is geared more toward feminine fashion items, and IAC markets to male-dominated categories like 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 and will be delisted from NASDAQ. There will not be an active trading market for outstanding Gmarket shares following completion of the offer.