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Global Turmoil Puts Gmarket Buy on Uneven Keel
By Kim Tong-hyung
Staff Reporter
EBay has South Korea's online auction market in its shopping cart, but the recent economic turmoil seemingly has the American Internet giant hesitating in front of the cashier, industry sources said.
Controversy erupted in September when the Fair Trade Commission (FTC) approved plans by eBay to acquire a controlling share in Gmarket (www.gmarket.co.kr), the country's leading auction site and Internet retailer.
EBay already controls around 43 percent of the local customer-to-customer (C2C) market through its Korean subsidiary, Auction (www.auction.co.kr), and the addition of Gmarket would give it nearly a 90 percent share of what has essentially been a two-player market.
Since the start of the year, eBay has been in talks to buy about 37 percent of Gmarket's shares owned by Seoul-based Interpark (www.interpark.co.kr) and its chief executive Lee Ki-hyung, in a deal that could be worth more than $400 million. EBay filed for preliminary approval to the antitrust watchdog in May.
However, with eBay hit hard by the freefall of the global economy that has been curbing consumer spending, industry watchers are now wondering whether the deal will ever go through.
Last month, eBay announced plans to lay off 10 percent of its 16,000 workforce, mostly from its core marketplace division, meaning that heads are soon to roll at Auction too. EBay traded around $25 per share on NASDAQ at the time of the FTC announcement, but the prices are now only half of that at around $13.
The falling Korean won, which had plumbed to new depths before slightly rebounding in the past month, could also be a factor in the talks, sources said.
Interpark said the deal will be based on U.S dollars, which would allow the company to pocket more money than it imagined at first. However, some believe that eBay may now want to pay less than the price discussed between the two sides before May.
In a conference call last month, Interpark's Lee said the company was trying to complete the deal by the end of the year.
``It's hard to predict the outcome of the talks, but I think the situation has become definitely tougher,'' said an official from 11st (www.11st.co.kr), the No. 3 Internet auction site.
``EBay has been suffering a freefall in stock prices, and the won-dollar rate is another factor to consider. The retail markets are freezing over, which could have an effect on the online sector as well, so there are a lot of uncertainties at this point,'' he said.
Consumers Are Losers
Should eBay eventually decide to continue its bid, it remains to be seen how much it will be willing to spend to acquire the remaining Gmarket shares.
Idealistically, it would be logical to buyout the remaining shares and eliminate it as a competitor, which would allow eBAy a virtual monopoly in the online auction market. However, analysts are skeptical whether the company is ready for that big a splurge.
When acquiring Auction in 2001, eBay bought out the remainder of the Korean company's shares through a tender offer and de-listed it from the KOSDAQ.
However, doing the same for the NASDAQ-listed Gmarket will require an immensely larger amount of money.
``I think eBay will be forced to operate Auction and Gmarket separately, and a full acquisition is out of the question,'' said Choi Chan-seok, an analysts from Eugene Securities.
``The combined value of Gmarket's outstanding shares exceed one trillion won, and I doubt that eBay would be willing to make that big of a commitment,'' he said.
The possibility of the deal falling through, however, may actually be a blessing in disguise for Interpark and the average Korean consumer. The company's decision to sell it shares in Gmarket had left many industry watchers scratching their heads, as the it had been seeing its share in the online market place diminish throughout the years and its ventures into computer gaming and Web-based education falling flat.
Gmarket posted around 222.9 billion won in revenue last year, about six-times larger than Interpark's 32.4 billion won.
``I actually think that Interpark would be saving themselves from their wrong decision if eBay walks out on them,'' said Choi
``Considering Interpark's capabilities and the current market situation, I don't think it will be able to find a new business that could replace their earnings from Gmarket,'' he said.
Park Jay-seok, an analyst from Samsung Securities, agreed that a broken deal would be best for everybody's interest.
``How much Interpark gets from the eBay doesn't actually matter … what matters more is what the company is going to do with it,'' said Park.
``You have to admit that the current government, in its zealousness to attract foreign investment, bent its rules to allow a single company to monopolize a single market,'' he said, adding that a monopoly in the C2C sector could threaten the business of smaller vendors who aren't able to sell their products on online shopping malls run by the larger retail chains.
``The platform of the C2C market is very different from the B2B marketplace, and as seen by Gmarket and Auction's duopoly, a tough market for newcomers to break into. The FTC has prevented eBay from raising sales commissions for the first three years, but what happens after that?'' Park said.
thkim@koreatimes.co.kr
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