EBay to Buy Butterfield for $260 Million
Four-year-old online auctioneer EBay said Monday that it will acquire the venerable 134-year-old Butterfield & Butterfield auction house, underscoring how upstart Internet firms are using their enormous stock market values to buy other companies.
EBay, known for auctioning Beanie Babies and other mundane items, will acquire the San Francisco auctioneer of Old Masters paintings and other fine collectibles for $260 million in EBay stock. That’s pocket change for the online firm whose stock is worth $25 billion, or nearly half of what General Motors’ is.
The towering valuations held by Internet companies reflect a belief among investors that these firms will not only change the shape of the technology industry, but also revolutionize the entire economy in coming years and emerge as a new class of corporate titans.
Top-tier Internet companies are using their hyper-priced stock to expand their businesses through acquisitions, and further distance themselves from second-tier online players and traditional offline companies.
In recent weeks, America Online, whose stock is worth about $150 billion, was rumored to be considering buying CBS, whose stock is worth about $32 billion.
Also on Monday, Amazon.com announced plans to acquire three Internet companies for a total of $645 million. The three enterprises--Exchange.com, which specializes in hard-to-find books; Alexa Internet, a Web navigation service; and Accept.com, an e-commerce technology firm--would be bought with stock.
“These are very clearly companies whose stock valuations can support $260-million acquisitions and many others on the Internet who can’t,” said Derek Brown, an analyst with Volpe Brown Whelan. EBay and Amazon.com “have significant competitive advantages in size and scale on the Internet, both from a product and services basis, and an acquisition basis.”
San Jose-based EBay was born four years ago as a Web site for collectors. But EBay, which last year earned $2.4 million on sales of $47 million, has a stratospheric stock price that makes the company worth $25 billion, more than the 109-year-old Eastman Kodak Co. whose sales are 30 times greater than EBay’s and whose stock is a component of the venerable Dow Jones industrial average.
In acquiring Butterfield, EBay would be contributing to the sky-high company valuations. Butterfield had planned an initial public stock offering, selling its shares at $11 to $15 apiece. That proposal is now dead, but the company’s acquisition by EBay values Butterfield at more than $41 a share.
“That certainly represents a more credible appreciation potential than Butterfield’s own price if they were to go public,” said David Menlow, an analyst with IPO Financial Network.
EBay stock closed Monday at a record $209, up $8.88, on Nasdaq.
The soaring stocks of Internet companies is not necessarily a sign that they are overvalued, Brown said, given the Internet’s potential and the rewards to the company that comes to dominate it.
“The opportunity in front of them remains incredibly large at this point in time,” said Brown, who plans to raise his estimates for EBay’s earnings, given that the company on Monday also reported quarterly results that handily beat analysts’ expectations. EBay earned $5.9 million, or 5 cents per share in the first quarter, on revenue of $34 million. Analysts had expected earnings of about $2.3 million, or 2 cents a share, according to First Call Corp., which tracks earnings estimates. EBay said it hosted 22.9 million auctions in the first three months of the year, compared to 13.6 million during the three months prior to that.
For EBay, the acquisition of Butterfield would give it new channels for both selling more upscale items such as antiques and jewelry and acquiring new products to sell to its online community.
Butterfield is the nation’s third-largest auction house after Christie’s International and Sotheby’s Holdings, and the largest on the West Coast. The company has a team of more than 50 appraisers who can authenticate items for sale and verify the financial status of a buyer, addressing areas that had concerned EBay customers.
EBay also hopes to use Butterfield’s relationships with auction houses around the world to open a premium area on its Web site, whose working name currently is Great Auction Houses of the World, said Steve Westly, EBay’s vice president of marketing and business development.
“This is a wonderful bridge for EBay into the higher tier of merchandise,” said Mitchell Bartlett, a financial analyst with Dain Rauscher Wessels. “I see them continually migrating up the auction curve to higher-end items.”
Even though Butterfield and EBay share very different clients, it is possible that the deal will bring new buyers to both high- and low-end products.
“There will be hidden gems within EBay that Butterfield clients will like to find from time to time when they choose to go, as they say, slumming,” said Allen Weiner, vice president of analytical services at NetRatings Inc. “And vice versa, there will be people in middle America who shop at EBay who will want to look behind the red velvet curtain to see what’s going on in first class.”
