Beware Silicon Valley financiers, Skype edition

By Felix Salmon
June 20, 2011
remember, for instance, the way in which Sequoia Capital forced Zappos to sell itself to Amazon over its founders' wishes. But at least when the sale took place the executives got their full share of the proceeds -- in contrast to what seems to be going on at Skype.

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Tensions between owners and managers are nothing new; you might remember, for instance, the way in which Sequoia Capital forced Zappos to sell itself to Amazon over its founders’ wishes. But at least when the sale took place the executives got their full share of the proceeds — in contrast to what seems to be going on at Skype.

Skype Technologies SA, the Internet- calling service being bought by Microsoft Corp, is firing senior executives before the deal closes, a move that reduces the value of their payout…

Silver Lake, based in Menlo Park, California, led a $2 billion buyout of a 70 percent stake in Skype from EBay Inc in 2009. The private equity firm and several Skype directors have actively voiced their opinions on who should be fired…

“As part of a recent internal shift, Skype has made some management changes,” said Brian O’Shaughnessy, a Skype spokesman.

When there’s a change of control, it’s standard for all options to vest in full. In this case Silver Lake is firing a slew of executives — at least eight, according to Bloomberg’s Joseph Galante — just before the change of control happens. Silver Lake’s partners and investors get to cash out at the $8.5 billion valuation; a large swathe of Skype’s own management, by contrast, does not.

This does seem pretty evil. I’m sure it makes financial sense for Silver Lake, which will be less diluted by the immediate vesting of lots of options. But when you’ve just scored one of the biggest home runs in the history of private-equity investing, it’s generally considered polite to share the spoils with the people who actually run the company. Rather than summarily firing them for no obvious reason but sheer greed.

5 comments

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I hope Sequoia and Microsoft are looking forward to dealing with the resulting lawsuit.

Posted by DrFuManchu | Report as abusive

Seems like they’re cashing in for the short term, for long term consequences of which they aren’t responsible for.

Posted by GRRR | Report as abusive

What can I say… it’s easy to get your feeling hurt shortly after you write a check with 10 digits before the decimal point. I’m betting MSFT’s hard ass integration team started rummaging around in Skypes recently deleted e-mails folder and found out that a few of the Skypers were pissing themselves laughing over how much MSFT agreed to pay. A few were conspiring to leave ASAP after the merger closes and start a secure cloud based office software company…

It dosen’t take long before Balmers minions start making a list of people to kill with extreeme prejudice. The Skypers who got stabbed in the back will probably get every cent they are due after a 5 year legal battle… but hey if you’re Balmer and you’re fried over how ill received the merger is by the financial press then I guess delaying your new enemy’s winning the lottery for a few years starts to look like a big win.

Posted by y2kurtus | Report as abusive

And you wonder why Wall Street and its variants have a bad reputation.

This sucks. And it is evil.

John

Posted by John_Hempton | Report as abusive

TechCrunch is saying that they still got 75%, and it wasn’t pressure from Silver Lake but completely an internal decision.

http://techcrunch.com/2011/06/20/skype-i nvestor-amount-saved-on-firings-wouldnt- have-been-worth-the-phone-call/

Posted by WLGades | Report as abusive