First, let's look at some of the main reasons not to merge:
- Amazon is growing fine on its own - They really don't need eBay; they have a plan to rule ecommerce and they are working hard to accomplish that goal -- it just may take awhile.
- Regulatory issues - If the top two online marketplaces joined forces, there might be some issues with the reduction in competition, but I think a merger would pass muster fairly easy.
- Corporate Cultures - You cannot find two more different corporate cultures and it would certainly be very difficult to mesh them, but not impossible. To be honest Amazon could use some lightening up and eBay could use some tightening up. The employees of both companies might actually welcome a little dose of culture from the other, but an all-Amazon culture would not work nor would an all-eBay culture.
- Amazon management would dominate - With Meg, Bill, Rajiv and many others no longer at eBay, the Amazon management team would dominate. I can't see many of the current eBay execs making the transition. So why would you agree to a deal that puts you out of a job? Maybe because there would be real upside for the share price again.
- Amazon is not enamored with the community aspects of eBay - Amazon is all about control and we've seen what exerting control has done to eBay's marketplace business. The two seller communities are much different, but this is not something that can't be overcome.
- Amazon has no need for Skype - Well, eBay has no need for Skype either so that makes them even. This could be solved rather easily by selling Skype to a large Telco, Microsoft, Yahoo or Google.
Okay, I'm sure there are more reasons not to merge, but those were the first ones that came to mind. The challenges would be difficult but not insurmountable.
Why would investors want a merger?
- Market Cap - both companies have almost identical market caps (Amazon $32.26 billion and eBay $31.97 billion), making an outright acquisition by one or the other near impossible.
- Cash in the Bank - The combined companies would have $6.38 billion in cash and even more (maybe $4 billion more) after the sale of Skype and less than a $1 billion in debt.
- $80 billion in GMV/Sales in 2008 - $20 billion in sales from Amazon and over $60 billion in GMV from eBay.
- PayPal and Amazon Payments - Combine One-Click checkout and A-to-Z Guarantee with PayPal's stored balance and userbase. That would be a pretty powerful combination.
- Margin Control - Overall, margins would compress some, but Amazon shareholders would love the increase in margins and eBay shareholders would love the faster growth.
- Undisputed Global Leader - The combined company would instantly be the undisputed worldwide leader in ecommerce.
- Ecommerce is Slowing - Make hay while the sun shines.
Why would Amazon want to merge?
- Speed up their plan - Amazon is very methodical when launching new categories and countries. A merger with eBay instantly opens up every category and an additional 20+ countries.
- Improve Margins - Adding eBay's high margin businesses to Amazon's very efficient operation, would give them ultimate pricing power for their retail business.
- eBay Motors - While the used-auto business is facing some challenges, eBay Motors is still a very valuable property.
- StubHub - Amazon gets into the Ticket business with a high margin operation.
- Classifieds - Amazon gets into the Classifieds business.
- Auctions - Many of you may disagree with me, but Auctions are not dead, eBay management has just put the governor on them. IMO, auctions need to be separate from fixed price and eBay is still the worldwide leader in auctions. The combined companies would alleviate some of the pressure to make the auction business a high-growth business, instead it would become a slower growth, but high-margin business that still has some life in it.
- PayPal - Combining PayPal and Amazon payments would create an unbeatable combination.
- eBay Stores - I believe that eBay stores are an under appreciated asset for eBay but could thrive under Amazon management. Half a million store owners would welcome the merger.
Why would eBay want to merge? (Fewer reasons than Amazon)
- The Marketplace business is unwinding - A combined company, takes the pressure off fixing the Marketplace problems today and allows management to go back to eBay Classic. Amazon is the fixed price leader and they know what they are doing in retail. eBay knows auctions -- ultimately a pretty powerful combination.
- PayPal - Instantly get access to 80 million Amazon customers and head-off any real competition from Amazon payments.
- Growth - There will be upside to the share price once again.
- Merge or get acquired - If eBay continues down the path they are on, they will have even less leverage in a deal a year from now and will become an acquisition target of Google or Microsoft. At least with an Amazon merger, they will have more say in the outcome.
I struggled a little to find reasons why eBay would merge with Amazon, but if they continue to struggle, their options will get much worse. Amazon doesn't need eBay, but eBay may need Amazon.
I'm sure there are many additional pros and cons that you can come up with and I would love to hear your 12%, so please use the comment section to let me know what you think. BTW, the likelihood of such a deal is really small but stranger things have happened.