For eBay, the Bet on Skype Pays Off. Finally!

When eBay (s EBAY) bought Skype in October 2005 for up to $4.1 billion dollars, turning founders Niklas Zennström and Janus Friis into billionaires, I was among the most vocal critics of the deal. I felt that it was going to kill the Skype franchise and that eBay would lose its shirt.

For the first two years, the company did lose its shirt as it spiraled out of control. eBay failed to integrate the company and, in the process, became the poster child of the how not to do a merger case study. But today, with Microsoft finally confirming the news we first broke on May 8, eBay can breathe a sigh of relief. A back of the envelope calculation shows that eBay might have made a 40 percent profit on its Skype adventure. Here is how.

While the initial announced price for Skype was up to $4.1 billion, eBay paid about $2.6 billion for the company and another $530 million in earn-outs to the two founders. So in total it spent about $3.1 billion.

In November, eBay sold 70 percent of the company for $1.9 billion to various investors and the Skype co-founders. The company received about $2.5 billion from Microsoft for rest of its share of Skype. In total the company has received about $4.4 billion or just over 40 percent more than it paid.

When eBay bought Skype, its stock was $40 a share. Now whether it was because of disastrous management or Skype, eBay stock took a nosedive and has only recently started to recover. If it used the $3.13 billion to buy its own stock, eBay would have lost about 21 percent on the investment. Even buying S&P 500 Index funds would have resulted in about 8 percent gain. (The S&P 500 was at 1,250 in Oct 05, and is at 1,346 today, for a gain of about 8 percent over the period.)

Today might just be the right day for everyone involved with Skype to take a moment and think about Josh Silverman, who took over Skype at a time when it was unraveling and had seen many chiefs come and go. He (along with some amazing people at Skype) stabilized the company, even though his understated style often came for a lot of criticism.

He took over Skype’s top job right after eBay took a $1 billion write-off in 2008. One would say, Silverman and other Skype members have done a good job of turning a turd into a saleable asset. He left the company after the spinout and is currently an EIR at Greylock Ventures.

eBay CEO John Donahue can pat himself on the back and say job well done. And more importantly, he is now free from the ghost of Meg Whitman that has haunted his tenure at the top position. Maybe it’s even time to send Silverman a big case of bubbly!