Although the two sides were planning a joint venture, eBay (Nasdaq:EBAY), with its strong stock as currency, decided to buy one of the world's largest and most prestigious auction houses.
eBay said the transaction is expected to be accretive in 1999 and added that it will take a charge in the second quarter when the deal is expected to close. After the bell today, eBay reports its first quarter results.
According to a regulatory filing, Butterfield & Butterfield reported earnings of $1.54 million on sales of $20.7 million in 1998. Butterfield & Butterfiled will withdraw plans for an initial public offering.
"This will allow eBay to bring the power of the Internet to the high end," said Rakesh Sood, an analyst with Goldman Sachs, an eBay underwriter. "eBay will be able to leverage a key asset and penetrate the upscale market. It puts them in a great position."
Moving up in the auction world
Although the acquisition will allow eBay to offer high-priced items on the Web, the online auctioneer could enter some uncharted waters as it battles Christie's International plc and Sotheby's Holdings, Inc., two of Butterfield & Butterfield's main offline competitors.
Through Butterfield & Butterfield, eBay will offer fine and decorative art and collectibles online in addition to its usual fare of Beanie Babies and Furbies.
"The question is can you convert someone who's interested in items under $20 under $100 to someone interested in the $500 to $5,000 range. It's a different purchase," said Fiona Swerdlow, an analyst with Jupiter Communications. "Those higher priced items might require that you can prove that you're able to pay for that item."
eBay will also add Butterfield & Butterfield's team of over 50 specialists who authenticate, appraise and market high-end collectibles.
"This transaction will combine eBay's technology and large community of users with Butterfield's expertise in premium markets and extensive relationships with dealers, auction houses and individuals throughout North America, Europe and Asia," said Meg Whitman, CEO of eBay, in a statement.
Million dollar appraisals
In its IPO filing, Butterfield & Butterfield said it was "recognized throughout the industry for our ability to appraise and auction items ranging in value from several hundred dollars to over $1 million in every major category of art and collectibles."
Butterfield & Butterfield, however, offers other services such as warranties, which is new territory for eBay.
"It's obviously an extension of their auction business. The eBay online proposition has worked well in that they don't take title they're just a matching service," said Swerdlow. "It is a different type of business (offline)."
Butterfield & Butterfield has been offering online auctions and expanding into the Internet. In February, Yahoo! Inc. (Nasdaq: YHOO) and Butterfield & Butterfield teamed up on a premier auction site. It's unclear what the status of the Yahoo! deal will be given the eBay acquisition.
Growth in the middle
Sood said eBay and Butterfield & Butterfield can cover the high- and low-ends of the auction market, but the growth will be in the middle-tier auctions.
"As the general population comes online auctions will gravitate for the Internet," said Sood.
eBay said it will continue its emphasis on the person-to-person online trading space and will utilize its purchase of Butterfield & Butterfield to enter the field of mid-tier auctions.
In its filing, Butterfield & Butterfield defined the middle-tier auction as offering items ranging in value from $300 to $10,000. "We believe that auctioning middle market properties over the Internet represents a significant growth opportunity for us," said the Butterfield & Butterfield in its filing.
eBay's idea is simple: to be the one-stop auction site. "If you're a collector you collect all sorts of things. It might be Limoges one day and Beanie Babies the next," said Swerdlow.
Earnings on deck
It's been a busy quarter for eBay and investors will be awaiting the results.
Sood expects eBay to report first quarter revenue of about $26 million with operating earnings of 4 cents a share and 2 cents a share including charges. The First Call consensus estimate for eBay is 2 cents a share.
Sood is projecting eBay to report 2.8 million registered users in the March quarter, up from 2.1 million in the December quarter.
Analysts expect eBay to talk about the threat from Amazon.com Inc. (Nasdaq: AMZN), its distribution pact with America Online Inc. (NYSE:AOL) and now the integration of Butterfield & Butterfield.
In early trading, eBay shares jumped 11 7/8 to 212.
ZDNN's Margaret Kane contributed to this report.