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eBay Eyes Stake in Online Seller Gmarket

eBay is seeking to buy a minority stake in Gmarket, the U.S. online auctioneer said on Wednesday, lifting shares of the South Korean online retailer by as much as 16 percent.

Some on Wall Street saw the move as the first step toward eBay taking over Gmarket and removing it as a competitor in South Korea, where the two companies battle for market share.

eBay (NASDAQ: EBAY) is in discussions with Interpark, a South Korean Web-based mall operator, and its chairman, Ki Hyung Lee, to buy out their interests, an eBay spokesman said.

The companies are seeking approval from the Korea Fair Trade Commission, eBay spokesman Jose Mallabo said.

"There can be no assurance that the KFTC will approve the possible transaction, that an agreement will be reached or that a transaction will occur," Mallabo said in a statement.

Interpark, the largest shareholder in Gmarket (NASDAQ: GMKT), directly held a 29.3 percent stake of that company, and Lee directly held 7.3 percent as of December 2007, according to Gmarket's most recent annual report filed in June.

Were the KFTC to approve the transaction, eBay would have a controlling share in Gmarket.

"The Korean market, due to its relatively more mature nature, is probably a good indicator of what's to come in Asia as well as other markets, and this is most likely very valuable for eBay," said RBC Capital Markets analyst Stephen Ju.

Gmarket has been undercutting eBay's South Korean business -- eBay runs subsidiary Internet Auction Co. there -- with lower commission fees, and now they compete head-to-head, each with about 20 percent market share, Ju said.

Rather than continue to compete with Gmarket, eBay will likely begin to buy out remaining shareholders, Ju said.

"They're there to take over the whole thing," Ju said, noting that there has been past Wall Street speculation that Yahoo (NASDAQ: YHOO), which owns a 10 percent stake in Gmarket, could be willing to part with some of its Asian assets.

Stifel Nicolaus analyst Scott Devitt agreed that a likely scenario would see eBay acquiring Yahoo's stake as well as remaining minority stakes.

"In our view, eBay could consolidate its Korean business into Gmarket and allow local management to run the business," Devitt wrote in a note.

Were eBay to buy all of Gmarket, the U.S. auctioneer could reach stock prices in the mid-$30s, Devitt said, adding that a minority position would mean it would likely hover around current prices.

eBay did not comment on how it would use its relationship with its competitor, and Gmarket could not be immediately reached for comment.

Gmarket, with a market capitalization of about $1.26 billion, runs customer-to-customer marketplaces such as eBay's and has more than 10 million registered users in South Korea, representing more than a fifth of the country's population.

In March, Interpark pulled out of a plan to sell its Gmarket stake due to what it called unstable financial markets in South Korea and abroad.

In July, Gmarket posted a quarterly profit that topped market estimates, helped by gains in its user base and gross merchandise value, the value of all items sold on its Web site.

eBay shares fell 25 cents, or 1 percent, to $25.80. Gmarket shares rose $3.18, or 14.3 percent, to $25.36 on NASDAQ.