If at first you don't succeed, buy a piece of the winner.
eBay (Nasdaq: EBAY) is in talks with the Korea Free Trade Commission, hoping to secure a minority stake in South Korea's leading online marketplace, Gmarket (Nasdaq: GMKT).
A pair of flashbacks is in order now, to give this story a little more directorial oomph.
The first scene takes us back to February, when media reports began circulating about companies bidding on Interpark's 29% stake in Gmarket. When the buzz faded, so did Interpark's interest in unloading its investment in the fast-growing website.
The next scene is eBay being smacked down by Gmarket back in January. Tired of playing second fiddle to Gmarket in South Korea, eBay made a bold prediction. "We believe we've significantly narrowed the gap with our main competitor," CFO Bob Swan said during the company's fourth-quarter conference call, pointing to the 33% spurt in Gross Merchandise Value (GMV) that eBay experienced in South Korea. The comments left eBay with egg on its face as Gmarket delivered a 42% gain in GMV during the same period.
There's no denying that eBay needs to be the top dog in a region for its network effect to really make its consumer-to-consumer marketplace work. Coming up short in Japan and China has been reason enough to retreat out of key markets instead of meander about as the silver medalist.
This is where snapping up a stake in Gmarket -- a stake that may be as much as 37%, if Interpark's chairman kicks in with his personal stake in the company -- is a cleaner solution for eBay.
It has done this before.
"Snapping up a minority stake of a fast-growing online marketplace isn't foreign to eBay," I wrote at the time. "It has a 25% stake in Craigslist. It also owns a small piece of Latin America's MercadoLibre (Nasdaq: MELI). It would be a shock to see eBay not in the bidding process here, especially given its recent struggles in its key U.S. and German markets."
If eBay is able to pull off this transaction, it wouldn't be the only stateside company with a minority stake in Gmarket. Yahoo!'s (Nasdaq: YHOO) three Asian investments include a 10% piece of Gmarket. However, since eBay's Auctio.co.kr site competes directly with Gmarket, we can't assume that the Korea Free Trade Commission will immediately fork over its blessing just because Yahoo! is already in the room.
Ultimately, eBay could really use this win. Flashbacks are too painful.
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