EBay has agreed to acquire for about $2.4 billion GSI Commerce, whose suite of e-commerce and digital marketing tools and services are expected to boost eBay's online marketplace and PayPal e-payment businesses.
EBay has offered to pay $29.25 per share and expects the deal to close in this year's third quarter, after obtaining regulatory and GSI Commerce shareholder approval, the company said on Monday.
The deal is primarily motivated by a desire to grow eBay's revenue, officials said during a press conference that was webcast.
In the past year, eBay's core marketplace business has struggled to grow, while PayPal has provided most of the company's revenue expansion.
GSI Commerce's products and technology "fit squarely in the direction" that eBay has identified as growth opportunities, eBay CEO and President John Donahoe said.
Specifically, GSI Commerce will bring long-standing relationships with its about 180 large retailer customers, which would help eBay gain a foothold in that segment of the market, beyond its core strength among individual sellers and small and medium-size merchants.
That could conceivably help eBay compete better against rivals like Amazon.com whose focus has traditionally been to partner with large, established retailers. GSI Commerce clients include Adidas, Calvin Klein, Levi's, Major League Baseball, Ace Hardware, Godiva, Radio Shack and Toys R Us.
"EBay is extremely interested in developing a portfolio of capabilities to compete against Amazon.com," said Leslie Hand, an IDC analyst.
In addition, GSI Commerce will help eBay provide new e-commerce services in emerging, high-growth areas, like mobile commerce, social commerce and the confluence of offline and online retail sales and marketing, Donahoe said.
For 2011, GSI Commerce will function as a separate business unit and focus on its existing goals, but later on it will be progressively meshed with the eBay marketplace and with PayPal.
For example, large eBay merchants may find GSI Commerce tools and services useful, while GSI Commerce customers may see opportunities to offload excess and discounted inventory on the eBay marketplace, officials said. There will also be a great opportunity to extend the use of PayPal among GSI Commerce customers as well.
The biggest potential benefit for eBay will be the ability to retain as customers the large and successful merchants that at some point break away and set up their own online storefronts, severing their revenue-sharing relationship with eBay, Gartner analyst Gene Alvarez said.
With the GSI Commerce services and products, eBay will improve its chances of holding on to those merchants, by offering them broad assistance with running their own e-store, including call center staffers, Web design, site hosting, digital marketing, order management and product fulfillment, he said.
"For every eBay seller that gets successful and leaves, eBay has to get another one to replace it," Alvarez said. "Hopefully, they'll be able to move them to GSI and keep them as customers, as new ones come in at the lower end."
However, eBay will have to deal with the trend among large retailers to cut e-commerce service providers like GSI Commerce out of the middle and bring some or all of that functionality in-house, IDC's Hand said.
"As their e-commerce performance improves, there's a general trend for retailers to build more internal capabilities to support those operations," she said.
The key is to target merchants that don't have the resources to ramp up their end-to-end e-commerce business and will find a cost benefit in outsourcing some or all of the functions to eBay and GSI Commerce, Hand said.
A new holding company led by GSI founder and CEO Michael Rubin will absorb parts of the company eBay isn't interested in and will divest, including 100% of GSI's licensed sports merchandise business and 70% of ShopRunner and Rue La La. The holding company will receive a $467 million loan from eBay, which will retain a 30% stake in Rue La La and ShopRunner.
EBay expects the deal to be "neutral" in terms of earnings per share in 2011 and accretive next year.
While GSI Commerce had revenue of about $1.4 billion in 2010, the parts of the business eBay would acquire generated about $900 million and eBay expects that to grow to about $1.2 billion in 2013.
Through May 6, GSI Commerce can entertain competing acquisition proposals, and, if any surface, those will only be made public if the GSI board of directors acts on what it considers a superior offer. EBay would then have a right to match the competing offer.
EBay's offer represents a 51% premium over GSI Commerce's stock closing price on Friday and a 47% premium over the stock's price in the past 30 days.
"It'll be interesting to see if anyone jumps at that opportunity or not because that could make it more complicated and less appealing if the price is driven up, because eBay is offering a reasonable price," IDC's Hand said.