eBay buys Butterfield & Butterfield

The popular online auction site eBay today announced it is acquiring Butterfield & Butterfield, one of the world's largest and most prestigious auction houses, to help extend its auctions into higher priced items on a global scale.

Shares of eBay surged 5.25 percent or 10.5 points to 210.63 in early trading today, surpassing its 52-week high of 204 in intraday trading.

eBay will continue to focus on the person-to-person online trading space while using Butterfield & Butterfield to enter the field of midtier auctions.

"We have the opportunity to accelerate our entry into the mid-tier market," eBay chief executive Meg Whitman told CNET News.com. With Butterfield & Butterfield's $20 million in revenue last year, land-based sales will remain a relative small share of eBay's income. The company reported first-quarter revenues of $34 million yesterday.

Butterfield will operate as a wholly owned subsidiary within eBay but also will jointly develop a new online marketplace within eBay to auction off goods costing $500 and up. Whitman regards Butterfield & Butterfield's appraisal and authentication services, which certify that an item not a fake, will boost eBay's efforts to sell pricier goods.

The deal will bring fine and decorative art and collectibles online, giving eBay members "access to many of the world's outstanding collections," Whitman said in a statement.

Analysts noted that more online auctions firms are likely to move either to partner with or acquire auction houses to try to generate revenue from higher-priced items to alleviate the current need for volume-driven sales. The higher the price-point for products, the less volume sensitive online auctions need to be, analysts agreed.

"There are only so many Beanie Babies and old records you can sell," said Sara Zeilstra, an analyst at Warburg Dillion Read. "It really is a volume driven business and moving into higher-priced items is what is needed."

"I think it is a step in the right direction for eBay to move into much more fine arts and higher-priced antiques," Zeilstra added.

The online auction site also hopes to bring added legitimacy to its site using Butterfield & Butterfield's team of more than 50 specialists who are able to authenticate, appraise, and market a wide range of art and fine collectibles including paintings, furniture, and jewelry.

"We believe this will enable a whole new generation of users to safely trade unique, high-end items on eBay," Butterfield & Butterfield president John Gallo said in a statement.

The transaction will be accounted for as a tax-free pooling of interests. The number of shares to be issued in the transaction will be determined by a formula involving the average price of eBay common stock during a period prior to the closing of the transaction.

Shares of eBay surged 16.35 percent or 28.13 points to close at 200.13 on Friday after the company announced a personal shopper service that alerts users when an item they are interested in buying is put up for sale on eBay. The company will release first quarter earnings figures today after the market closes.

The deal is expected to be accretive in 1999 and eBay may recognize certain one-time expenses related to the transaction in the quarter of closing.

Completion of the deal is subject to certain conditions, including regulatory approvals, and is expected to take place in the second quarter.

Butterfield & Butterfield, which had planned an initial public offering, also announced it is withdrawing the proposed IPO.

According to both companies, Butterfield & Butterfield had already began providing auctions over the Internet through its relationship with a local company. The auction house ended the arrangement three weeks ago in order to work with eBay.