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eBay Buys South Korean Auction Firm for $1.2B

eBay is buying South Korean online auctioneer Gmarket for $1.2 billion in cash in an effort to tap overseas growth potential after posting itsfirst sales decline early this year.

The deal would set the stage for eBay to take a leadership position in South Korea, where Gmarket dominates the auction landscape in the world's sixth-largest e-commerce market.

eBay (NASDAQ: EBAY) said it had agreed to buy 67 percent of Gmarket from investors, including Yahoo, and will make a offer of $24 a share for the rest. That's 20 percent more than Gmarket's (NASDAQ: GMKT) closing price of $19.96 yesterday.

The news comes at a time when eBay is pursing a new strategy as it loses market share to high-flying rival Amazon (NASDAQ: AMZN).

eBay's also seen its core business begin to wilt. Revenue from the company's marketplaces businesses, including its namesake auction and fixed-price Web site, fell during 16 percent to $1.27 billion in the fourth quarter. About 55 percent of the division's revenue came from outside the U.S., compared with 54 percent a year earlier.

But eBay is aiming to shore up weaknesses in its business a result of its new strategy, which has seen it move away from its genesis as an auction platform to become a more diversified online marketplace -- increasing its focus on overstock sales and more fixed-price items.

With Gmarket under its wing, eBay plans to combine the firm with its existing South Korean unit, Internet Auction Co. (IAC), which eBay said would be able to double its sales as a result, while shoring up its position to continue expansion in Asian markets.

The acquisition also provide other strengths for eBay's efforts in South Korea, where it first began playing with its acquisition of IAC in 2001.

Gmarket's focus on fashion-oriented categories and IAC's focus on computers, electronics and sports give the two platforms core strengths in complementary consumer segments, according to eBay. Females age 20-29, representing Korea's fastest-growing online segment, comprise more than 21 percent of Gmarket's consumer base. Males age 30 and over comprise IAC's biggest consumer segment.

"The combination of Gmarket and IAC establishes an exceptionally strong leadership position for eBay in one of the world's largest, most dynamic and innovative e-commerce markets," John Donahoe, eBay's president and CEO, said in a statement. "This deal creates strong operational synergies between the two market leaders, offers more opportunities for sellers and enhances our ability to serve complementary consumer segments."

The combination also could provide support for Korean sellers who want access to eBay's global network. By joining eBay's Cross Border Trade program, Korean small and midsized sized businesses can export their products to buyers in foreign countries using eBay, according to the company.