April 16 (Bloomberg) -- EBay Inc. offered to buy South Korean online auctioneer Gmarket Inc. for $1.2 billion in cash, seeking to expand in the world’s most connected Internet market after posting its first sales decline.

The operator of the most visited U.S. e-commerce site agreed to buy 67 percent of Gmarket from investors including Yahoo! Inc. and will make an offer of $24 a share for the rest, according to a statement. That’s 20 percent more than Gmarket’s closing price of $19.96 yesterday on the Nasdaq Stock Market.

EBay plans to combine Gmarket with its South Korean unit Internet Auction Co., more than doubling its sales in the country and gaining local expertise that may allow further Asian expansion. The company is looking for growth outside the U.S., where it is losing e-commerce customers to Amazon.com Inc.

“EBay probably found Gmarket’s business model attractive and is likely to leverage that to expand in other Asian countries,” said Kim Chang Kwean, an analyst at Daewoo Securities Co. in Seoul. “For Gmarket, it can also utilize EBay’s global network to enter overseas markets.”

South Korea is the world’s sixth-largest e-commerce market after the U.S., Germany, U.K., China and Japan, according to EBay. In Asia, EBay’s units operate in India, China and Taiwan. The company also has partnerships in Japan and Thailand.

Gmarket, based in Seoul, rose $3.83, or 19 percent, to $23.79 on the Nasdaq at 4 p.m. New York time. San Jose, California-based EBay added 9 cents to $14.41.

Revenue Drop

Revenue from EBay’s marketplaces businesses, including its namesake auction and fixed-price Web site, fell 16 percent to $1.27 billion in the fourth quarter. About 55 percent of the division’s revenue came from outside the U.S., compared with 54 percent a year earlier.

The Gmarket purchase could draw EBay’s focus away from its efforts to turn around its main domestic business, said James Cordwell, an analyst at Atlantic Equities in London. Gmarket may also run into similar problems as the U.S. site, Cordwell, who rates EBay’s shares “underweight,” said in a note to clients.

Changes in the past year at EBay’s U.S. site have alienated both buyers and sellers, many of whom have fled to Amazon.com, according to Majestic Research LLC and ComScore Inc. EBay’s total revenue fell 6.6 percent in the fourth quarter, the first drop since its initial public offering in 1998, while Amazon.com’s sales rose 18 percent.

Gmarket, whose sales rose 25 percent to 279 billion won ($210 million) last year, saw the value of all goods sold through its Web site increase 23 percent to 4 trillion won in 2008. The value of sales through EBay’s Internet Auction was 2.8 trillion won last year.

‘Not Cheap’

Gmarket will add as much as $130 million to EBay’s revenue this year and cost it no more than 5 cents of earnings per share, Chief Financial Officer Robert Swan said on a conference call. The acquisition will help EBay push into Japan and other Asian markets in the next 6 to 12 months, Chief Executive Officer John Donahoe said.

“This macro environment is an opportunity for strong companies to get stronger,” Donahoe said in an interview. “We feel this is a valuation that will stand the test of time.”

The price is “not cheap” and gives Gmarket a higher relative value than what investors place on EBay, Justin Post, an analyst at Bank of America in San Francisco, said in a note. He reiterated his “underperform” rating on EBay’s stock.

Interpark Corp., a South Korean online retailer, said today it sold 14.6 million Gmarket shares to EBay for $350 million. Other investors that have agreed to sell include Interpark Chief Executive Officer Lee Ki Hyung. Interpark said it plans to focus on its existing online retail business and invest in new operations.

In August, EBay said it was considering buying a minority stake in Gmarket. In September, it received approval from the Korea Fair Trade Commission to purchase the company’s shares.

EBay said it will probably complete the purchase in the second quarter. EBay plans to delist Gmarket from the Nasdaq following the deal.

To contact the reporters on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net; Kevin Cho in Seoul at kcho2@bloomberg.net

Last Updated: April 16, 2009 16:07 EDT