When the rumors came out last thursday on the Skype acquisition, eBay stock dropped 3.8%. With 1.35B shares outstanding and each share losing $1.53, eBay lost about 2.07B in market cap. With the overall market being flat that day, the 2.07B lost in market cap can probably be attributed to the Skype rumours. On Friday, eBay lost another 0.31 cents a share, bring the total value lost to about $2.5B. Today we find out that eBay was buying Skype for $2.6B to $4B.

So what does this mean? It means that the traders on Wall Street knew way before the “tech crowd” (as we debated the merits of the acquisition) that the acquisition was a foregone conclusion by Thursday closing. With little downward movement in the eBay stock price today (except at opening) the traders essentially covered their shorts/puts early in the morning, taking profits before Meg talks up the acquisition (and the eBay stock goes up).

As we all learned before on the theory of market efficiency, the collective wisdom of the market is generally correct. In this case, somehow the street knew that eBay was buying Skype with close to 100% certainly FOUR days before it actually happened. If anybody bothered to do some simple math, they would have known last week too (instead of bagging on the rumour as a lot of people did, although the merits of such an acquisition certainly deserves debate). The question I have is who leaked the rumors? Someone at Merrill (eBay advisor), Morgan Stanley (Skype advisor), Skype, and maybe eBay must have really lose lips for traders to be so certain that this transaction would happen.

BTW, here is the justifications for the acquisition from eBay’s perspective.