EBay Inc.'s planned $2.4-billion acquisition of a little-known but key player in the growing business of operating online stores for retailers is the latest in a bid by the Internet shopping giant to become a more competitive rival to Amazon.com Inc.
By buying GSI Commerce Inc., EBay would overnight gain access to nearly 200 large, marquee retailers and brands. GSI, based in King of Prussia, Pa., processes online payments, fulfills orders and manages customer service for clients such as Calvin Klein, Mattel Inc. and the NFL.
The acquisition — EBay’s largest since it bought Internet phone service company Skype for $2.6 billion in 2005 — could also help the company keep up with changing shopping habits, which increasingly is being done on the computer and on smartphones.
Until now, the company has attracted mostly small businesses and mid-size merchants that use its auction site to sell knickknacks and used goods. That has limited EBay’s growth and has caused it to lose ground to rival Amazon, which uses a more straightforward fixed-price format favored by many major retailers and brands.
EBay is trying to create more focused product categories such as apparel, accessories and electronics on its site, “rather than just be a Wild, Wild West marketplace,” said Mark May, a senior analyst at Needham & Co. “This acquisition is one strategy” as it tries to broaden its services and attract more sellers.
Some investors seemed uneasy about the deal announced Monday, pushing EBay shares down $1.36, or 4.3%, to $30.34. But shares of GSI surged $9.82, or 50.7% to $29.20. Using a mix of cash and debt, EBay said it would pay $29.25 a share, a 51% premium on GSI’s closing price Friday.
The deal is contingent upon regulatory and shareholder approval.
For the last few months, San Jose-based EBay has been undergoing a major makeover as it tries to grab a larger share of online retail sales, which in the U.S. surged nearly 13% to $176.2 billion last year and is expected to boom to nearly $280 billion by 2015, Forrester Research said last month.
The company recently updated its homepage layout, scaled back its seller fees and added a shopping cart function. It has also pumped more than $1 billion into research and development of its smartphone shopping capabilities, including the bar code-scanning application RedLaser it acquired last year and the Milo Local Shopping app that sorts products by price and retailer location.
“Whether you’re the largest retailer or a small business … you need to drive demand in different and new ways, you need to reach buyers globally and not just locally, and you need to keep up with the pace of innovation,” EBay Chief Executive John Donahoe said in a webcast.
The company plans to run GSI as a third leg to its existing services, EBay Marketplaces and online payment system PayPal, for which it paid $1.5 billion in 2002. Through the deal, EBay would also pick up several warehouse facilities used for fulfilling online orders.
GSI also owns shopping site ShopRunner.com and luxury discount website RueLaLa.com, which faces stiff competition from websites run by Gilt Groupe and Ideeli Inc. EBay said the two sites were “not core to its long-term growth strategy” and plans to sell 70% of both to a new holding company led by GSI CEO Michael Rubin.
Under the deal, GSI has until May 6 to solicit other offers.