EBay Inc. has agreed to acquire GSI Commerce for $29.25 a share, or total consideration of approximately $2.4 billion. Combined with eBay Marketplaces and PayPal, eBay said it believes GSI “will enhance our position as the leading strategic global commerce partner of choice for retailers and brands of all sizes.”
 
The acquisition, which will be financed with cash and debt, is expected to close in the third quarter of 2011. The merger consideration represents a 51% premium over GSI's March 25, 2011, closing price and a 47% premium over the average closing price of GSI Commerce common stock over the 30 trading days prior to March 28, 2011.

As part of the deal, eBay said it plans to divest GSI's licensed sports merchandise business – Fanatics Inc. – and 70% of its ShopRunner and Rue La La businesses into a holding company to be run by GSI founder and CEO Michael Rubin.

GSI also has a 40-day “go-shop” period to solicit competing proposals. The transaction will require the approval of GSI shareholders.

GSI provides services to more than 500 retailers and brands, including: Adidas, The Sports Authority, Dick's Sporting Goods, 7 for all Mankind; Aeropostale; American Eagle Outfitters, Avis, Bath & Body Works, British Airways, Calvin Klein, Estee Lauder, Expedia, HP, Major League Baseball, the NFL, The TJX Companies, Tory Burch, Toys “R” Us, Tumi and Warnaco. It started out as Global Sports and continues to operate the e-commerce websites for several sporting goods retailers.

“We intend to lead the next generation of commerce innovation. The acquisition of GSI, which offers the most comprehensive integrated suite of online commerce and interactive marketing services available, will significantly strengthen our ability to connect buyers and sellers worldwide,” said John Donahoe, eBay Inc. president and CEO, in a statement. “Combined with eBay Marketplaces and PayPal, we believe GSI will enhance our position as the leading strategic global commerce partner of choice for retailers and brands of all sizes.”

With more than 180 customers across 14 merchandise categories, GSI has long-term commerce services relationships with leading retailers and brands. GSI is expected to benefit from eBay's global platform and technology capabilities, with its clients being able to leverage eBay Marketplaces and PayPal services.

“Technology is changing how consumers shop, and retailers and brands are changing how they compete,” Donahoe said. “With its complementary strengths, GSI will extend the power of our portfolio. With eBay, PayPal, GSI and our global platform capabilities, we are focused on delivering new ways for retailers and brands of all sizes -from sole proprietors to large merchants – to drive innovation, engage customers and help people shop anytime, anywhere and on any device.” 

EBay expects the transaction to result in synergies of approximately $60 million by 2013; the company expects the transaction to be EPS neutral in 2011 and accretive in 2012.
 
EBay will divest much of its interest in several parts of GSI�€�s business, including 100% of GSI�€�s Fanatics Inc. unit, which sells licensed sports merchandise. GSI purchased Fanatics last month for $277 million. EBay will also sell off 70% of flash-sale site Rue La La and 70% of ShopRunner, the shipping program GSI launched last year that aims to compete with Amazon�€�s Prime shipping program.

EBay says these businesses are not aligned with its long-term growth strategy. 

Under the terms of the merger agreement, GSI Commerce may solicit acquisition proposals from third parties for a 40-day “go-shop” period continuing through May 6, 2011. It is not anticipated that any developments will be disclosed with regard to this process unless GSI Commerce's Board of Directors makes a decision with respect to a potential superior proposal. The merger agreement provides eBay with a customary right to match a superior proposal.
 
There is no guarantee that this process will result in a superior proposal. Goldman, Sachs & Co. and Peter J. Solomon Company are acting as financial advisers to eBay, while Dewey & LeBoeuf LLP is acting as its legal adviser with regard to the transaction. Morgan Stanley & Co. Incorporated is acting as financial adviser to GSI Commerce and Davis Polk & Wardwell LLP is acting as legal adviser to the special committee of the GSI Commerce Board of Directors. Morgan, Lewis & Bockius LLP is acting as legal adviser to GSI Commerce.
 
Business Outlook
 
Assuming its acquisition of GSI closes mid-third quarter, eBay said it expects the deal to be immaterial to its 2011 non-GAAP EPS guidance which it announced January 19, and have a negative impact of $0.30 – $0.34 to its 2011 GAAP EPS guidance, including a GAAP charge primarily related to the divested GSI businesses