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December 19, 2006

We Called It - eBay and Tom Online Rumor Turns Out To Be True

posted by MR WAVETHEORY at 12/19/2006 08:31:00 PM
eBay's Shanghai HQ are located in the Capitaland Building

Back in September, I wrote about a merger rumor between Tom Online Inc. (ADR) (Nasdaq TOMO) and EBay China (Nasdaq EBAY). After 3 months of behind the scenes work, it has turned out to be true. Tom Online and eBay are forming a 49/51 partnership (49 owned by eBay and 51% owned by Tom).

The title of the press release is "eBay Inc. and TOM Online Announce Joint Venture Agreement To Enable Next Phase of E-Commerce Growth in China." The truth is that Alibaba's Taobao service kicked eBay's butt. Alibaba is owned by Yahoo! Inc. (Nasdaq YHOO). If there is one bright spot in Yahoo!'s business, it is Alibaba.

The deal signals the end of Eachnet.

eBay EachNet, eBay Inc.'s China-based subsidiary, and TOM Online will combine expertise to build a new China marketplace in 2007. The new marketplace will bring together the strengths of both companies -- eBay EachNet's global e-commerce knowledge and large and active trading community in China, and TOM Online's local market knowledge and active wireless user base of more than 75 million.

It also requires eBay to contribute $40 million to the JV and Tom Online will be putting in $20 million.

eBay will have a 49% stake in the joint venture, and TOM Online will have a 51% stake. Both companies will make financial contributions to the venture, including a US$40 million cash contribution from eBay and US$20 million in financing from TOM Online. If mutually agreed, the two companies can equally share in an investment of up to an additional US$10 million. In addition, eBay will also contribute its EachNet subsidiary, while TOM Online will contribute local management expertise, technology, and brand. The formation of a joint venture will foster synergy among user communities and distribution channels, enhance rapid product innovation capabilities on a local platform, and promote mobile integration.

I give the thumbs up for EBay to partner. Basically, Tom Online will be running things from now on.

Wang Lei Lei will be chief executive officer of the JV, and drive the vision for the new local, China marketplace. eBay EachNet CEO Jeff Liao will provide management support from eBay to the JV. Liao will also continue to lead eBay's separate operations in China, including the expansion of eBay's business efforts in China to promote global trade by PRC-based sellers, as they ramp up their trading practices with people around the world.

eBay becomes the latest American company to learn that going into China alone is full of pitfalls.

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