Friendliness isn’t insider trading

By Felix Salmon
September 5, 2009
Joe Nocera this week looks at eBay's sale of Skype, and wonders who would pay $2 billion for a company with a massive lawsuit hanging over its head. With apologies for quoting at some length, here's the nub of Nocera's thesis:

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Joe Nocera this week looks at eBay’s sale of Skype, and wonders who would pay $2 billion for a company with a massive lawsuit hanging over its head. With apologies for quoting at some length, here’s the nub of Nocera’s thesis:

The Skype founders’ essential complaint is that eBay tampered with their software, and in doing so, violated the terms of the licensing agreement. They were demanding that Skype be forced to stop using the technology, which, for all intents and purposes, would mean shutting down Skype itself…

The founders would have been willing to come up with a price that suited eBay — if they had been able to enter into negotiations. What is clear is that the bad blood that had developed between eBay and the founders was infecting the potential negotiations over a buyback of the company…

Not long before Index Ventures became interested in Skype, it brought on board a man named Michelangelo A. Volpi, a highly respected former Cisco executive who — hmmm — once sat on the Skype board. In fact, he was so well liked by the Skype founders that they hired him to run Joost…

Mr. Volpi told me that not long after he arrived at Index Ventures, he discussed the possibility of making a run at Skype — and he and another Index Ventures partner, Danny Rimer, in turn rounded up Silver Lake and Mr. Andreessen, who — hmmm — sits on the eBay board.

So another theory: because of his friendship with the Skype founders, Mr. Volpi believes he’ll be able to settle the lawsuit…

It is, alas, unsatisfying to delve into a mystery like this and not be able to solve it. But over time, it will become clear. Either the case will linger, and we’ll know that Silver Lake, Andreessen et al. do indeed have nerves of steel.

Or it will quickly go away, which will provide an answer of a less seemly sort.

The problem I have here is with the “hmmm”s and the “less seemly”. Nocera is clearly of the opinion that if Skype’s buyers have a tacit agreement to settle with JoltID, that would be pretty scandalous. But why?

From the point of view of eBay’s shareholders, the existence of any such agreement would clearly be a good thing: they managed to sell Skype for $2 billion as a result. More generally, it’s clearly Pareto-optimal that Skype and JoltID are on good, non-litigious terms with each other. And it’s obvious that they were never going to be on such terms so long as eBay owned Skype. If Adam Smith’s invisible hand were doing its job, then, eBay would sell Skype to someone who had much friendlier relations with JoltID. What’s unseemly about that?


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Of course there’s the obvious, which is that eBay is required to inform shareholders via SEC filings of any material information. The likelihood of settling the suit certainly would qualify. EBay’s value should Skype’s founders prevail has generated much Internet speculation and is a legitimate topic for discussion. Joe Nocera’s a respected journalist and his views are valued even if he’s not 100 percent right.

Posted by eric20008 | Report as abusive

we are not in the world of M&A as all people think. Its the time of buying shares and companies at a lower premium its all about buying in a discounted markets cash in dollars is a way a mean of power only for buying shares will we have a M&A pupple yes we will.

eric2008, this would not be considered material information that needs to be disclosed, unless maybe they already had some sort of secret agreement to settle the litigation. A mere ‘likelihood’ isn’t enough – and if the idea here is simply that this team has friendlier relations with JoltID and therefore expect that they might have an easier time reaching a settlement, I would say that it’s not even a ‘likelihood’ – perhaps more likely, but not anywhere near the level of certainty that gives rise to a filing obligation.

Posted by bcw210 | Report as abusive

eBay made a mistake by not buying the technology

Posted by Timothy Hatton | Report as abusive