With Korea Deal, eBay Tries Again in Asia

Internet retail giant eBay (EBAY) is going on the offensive in Asia. On Apr. 16, eBay said it had secured agreements to buy a 67% stake of South Korea's Gmarket (GMKT) in a deal estimated to be worth as much as $1.2 billion.

The purchase will give eBay control of Korea's two e-commerce heavyweights and help with eBay's expansion into one of the world's largest and fastest growing online markets. The San Jose company will own roughly 90% of all consumer-to-consumer e-commerce spending in the country, and 37% of its overall e-commerce, according to brokerage Woorie Investment & Securities. Korea's Fair Trade Commission has signed off on the deal, but ordered eBay not to raise fees for three years.

Until a few years ago, eBay subsidiary Internet Auction was the leader in Korea and eBay's big success story in Asia. At Internet Auction's peak, it accounted for three-quarters of eBay's revenues from Asia. But upstart Gmarket quickly gained a foothold, and by 2006 it was beating Internet Auction for market share. Last year, Gmarket sold $3.2 billion worth of goods, compared with Internet Auction's $2.2 billion.

Global Sales Dip

The move is part of eBay CEO John Donahoe's effort to increase revenue in coming years. EBay's global sales declined for the first time in the fourth quarter of last year. The acquisition is expected to more than double eBay's revenues in Korea immediately. Gmarket's revenue stood at $220.8 million last year, when Internet Auction posted revenue of $161.2 million.

Donahoe, a former Bain & Co. consultant who took over the top job from Meg Whitman, said in a statement his strategy in Korea is important as the country is "one of the world's largest, most dynamic, and innovative e-commerce markets."

EBay is making a cash offer to buy all outstanding shares of Gmarket for $24 per share. Yahoo! (YHOO) has said it will sell its 10% stake in Nasdaq-listed Gmarket to eBay. Other shareholders who have agreed to sell another 57% stake include Seoul's Interpark and Gmarket's top executives. The $24 per-share price represents a 20% premium over Gmarket's closing price of 19.96 on Apr. 15. EBay plans to delist Gmarket from the Nasdaq if the deal is concluded.

Gmarket operates a bit differently from eBay. For one thing, Gmarket places less emphasis on an open-auction format, instead focusing on selling goods at fixed prices, with an option to negotiate with a seller on an exclusive basis. This allows buyers to conclude deals instantly instead of having to wait until an auction deadline. EBay offers the option in Korea, but the method accounts for 90% of Gmarket's sales volume.

Lottery Feature

Gmarket's strength is in clothes and other fashion-related consumer items. But it has also added new features that bring the element of fun to shopping. One example: a lottery called "lucky auction." The winner of the auction, picked at random by Gmarket's computers, lets shoppers buy everything from LCD televisions to T-shirts at a fraction of the market value.

Gmarket would help eBay's push into Asia, where the company has struggled in recent years. In China at the end of 2006 it announced it was shutting down its site and forming a partnership with Tom Online, controlled by Hong Kong billionaire Li Ka-shing. Like many U.S. Internet companies, eBay has repeatedly tried to broaden its reach in Asia, where local rivals have strong ties to users. But eBay has Yahoo to contend with: Yahoo holds a 40% stake in the Alibaba Group, the parent of China's largest e-commerce company.

Once Gmarket's operation is combined with Internet Auction, eBay plans to introduce the Korean model to the rest of Asia. "Gmarket has been one of the most successful e-commerce companies in Asia, and we want to use its model to expand our presence in the region," says Jay Lee, eBay's senior vice-president who heads the Asia-Pacific region.

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