An Auction of eBay, Itself?

Should Meg Whitman try to be the Barry Diller of Silicon Valley? Like the acquisitive IAC/InterActiveCorp boss, Ms. Whitman seems to like shopping for companies. She has added telecoms, payment services, tickets and other booths to eBay, her Internet bazaar. Yet investors aren't sure these assets belong together. Perhaps Ms. Whitman should emulate Mr. Diller's recent decision to break up his empire into nimbler parts.

Take eBay's core auction business. There are few comparable companies, but Amazon.com and Yahoo are close enough -- on average, they trade at 21 times estimated 2008 earnings before interest, taxes, depreciation and amortization. EBay's auction business is expected to generate Ebitda of about $2.5 billion next year. Put on a multiple somewhere between Yahoo and Amazon, and eBay's auction arm would be valued at about $53 billion. That is more than the $46 billion market cap for all of eBay.

That means eBay's online-payments business, PayPal, comes effectively for free. This business is flying, as internet commerce still is in its relative infancy. It might generate Ebitda of $600 million in 2008, based on the company's projections for its operating-profit margins. Put this on the same multiple as MasterCard, which may be conservative given PayPal's growth, and the division is valued at around $5.5 billion.

So why aren't investors giving eBay proper credit? Ms. Whitman's big $3.1 billion purchase of Skype and subsequent need to write-down that business's value left a lingering impression that she is an empire builder. One way to show that isn't the case would be to push some of eBay's businesses out of the tent.

PayPal might find independence handy. Rivals Amazon or Google might reconsider their aversion to using Paypal's services if it wasn't run by a competitor. Spinning it off or selling a stake in a public offering also might reduce the conglomerate discount attached to eBay. Selling may not be as fun as shopping, but it usually is more lucrative.

Buyout-Loan Revival

The buyout-loan market's summer seizure looks like a thing of the past. Recent sales of loans to finance leveraged buyouts, such as those for First Data, TXU and Bausch & Lomb, have done surprisingly well. A host of unconventional loan buyers have taken the place of moribund collateralized loan obligations, or CLOs, which are investment vehicles that issue bonds backed by pools of loans.

The question is whether those investors will stay. This week, $20 billion-plus of leveraged loans is being shopped around. These include relatively popular credits such as telecom Alltel and tougher sells like Chrysler.

There is reason for optimism. Banks have priced loans, on average, at 98 cents to 99 cents on the dollar in the past two months, and most have traded up in the secondary market.

The mix of investors buying this debt is different than before the crisis. Then, nearly two-thirds of leveraged loans were bought by CLOs. Those vehicles have become rarities.

Taking their place have been distressed-debt funds, credit hedge funds and high-yield mutual funds. These are drawn to the now-attractive yields and the fact that the loans are secured, and so are safer than, say, junk bonds.

Some worry this is just an autumn fling and not a long-term relationship. After all, the distressed-debt funds hoped to buy loans at around 90% of face value. They may have bought more richly priced debt just to put capital to work and could turn to other asset classes, or simply return capital to investors. High-yield mutual funds have been similarly opportunistic. If the bond market improves, they may switch out of loans again.

With the CLO machine out of action -- probably for a while -- it still is a fragile balance. The new investor base could be scared off if banks start trying to squeeze rates or flood the market with too many loans. Underwriters may be eager to get these deals done, but they need to play their cards carefully.

 This column is by breakingviews.com, an online financial commentary site.