April 16, 2009, 12:00 AM

eBay will buy South Korea’s largest online marketplace for $1.2 billion

Days after announcing plans to divest two peripheral units, eBay has strengthened its core business by closing a deal to buy Gmarket. The move solidifies eBay’s position in the sixth-largest e-commerce market in the world.

Capping a week of deals designed to refocus the company on its core businesses, eBay Inc. has announced it will buy Gmarket, the largest online marketplace in South Korea. The cash price could amount to $1.2 billion if all Gmarket’s shareholders sell their stakes to eBay.

The deal follows eBay’s announcements this week that it would shed two businesses outside of its core focus of e-commerce and payments. The company said it would spin off Internet phone service Skype in a public offering next year and sell personalized search engine StumbleUpon back to its founders and other investors.

EBay already owns a smaller web marketplace in South Korea, Internet Auction Company. Adding Gmarket will give eBay control of about 40% of online shopping in South Korea, says analyst Colin Sebastian of Lazard Capital Markets LLC.

“The combination of Gmarket and IAC establishes an exceptionally strong leadership position for eBay in one of the world’s largest, most dynamic and innovative e-commerce markets,” says John Donahoe, eBay’s president and CEO. “This deal creates strong operational synergies between the two market leaders, offers more opportunities for sellers and enhances our ability to serve complementary consumer segments.”

Donahoe told analysts on a conference call today that this week’s deals are meant to refocus eBay on its two main businesses, online marketplaces and its PayPal online payment service. “We have two strong, dynamic core growth engines, e-commerce and online payment,” he said. “We’re positioning our company to compete and win in these core businesses.”

South Korea is the sixth-largest e-commerce market in the world, eBay says, after the U.S., Germany, United Kingdom, China and Japan. Donahoe said the acquisition would help eBay expand further in Asia, most likely starting with Japan.

Gmarket, which mainly sells at fixed prices rather than through auctions, generated $3.2 billion in merchandise sales in 2008, just over 5% of eBay’s global gross merchandise volume of $60 billion. Internet Auction Company’s volume was $2.2 billion, eBay says.

Lazard’s Sebastian notes the deal gives eBay control of two marketplaces with distinct businesses, as Gmarket is strong in fashion-oriented categories and Internet Auction Company in computers, electronics and sporting goods.

“Overall, we view the deal as a positive step for eBay internationally by establishing a leadership position in a rapidly growing market, and also by serving as a potential launch pad to expand into other countries in Asia,” Sebastian wrote in a note to investors today. “Historically, eBay had limited success in gaining a foothold in Asia, where local players tend to dominate online shopping.”

Owners of two-thirds of Gmarket’s shares have agreed to sell to eBay, the company says. That includes Yahoo, which owns 10% of Gmarket. In addition, eBay says it already has obtained preliminary approval for the deal from South Korean regulators.

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