I Love the Smell of Settlement in the Morning: Skype Founders Set to Get 10 Percent, Option to Buy Three Percent More and Two Board Seats
According to several sources close to the situation, barring any unforeseen delay, a deal to settle the Skype imbroglio is likely to be announced around the time the markets open tomorrow.
[UPDATE: The paperwork is taking longer than expected, so sit tight, said sources.]
While the massive agreement–which will settle three aggressive lawsuits lobbed by Skype co-founders Niklas Zennström and Janus Friis at a wide range of prominent Silicon Valley players–is not yet officially signed, sources said lawyers are apparently putting the finishing touches on the paperwork and have signature papers completed by both sides to be able to wrap it up quickly.
So, while nothing is ever over until it is over, it looks like it is over.
Sources also said that as part of the deal to end the legal madness, Zennström and Friis will get 10 percent of Skype back for rights to key software technology they control, an option to pay $83 million for another three percent of the Internet telephony service and two seats on the 23-member board.
Also, BoomTown has learned that a partridge in a pear tree will be thrown in to guarantee a lasting peace.
All kidding aside, the settlement is proof that squeaky wheels–especially if they hire the combative litigators of Skadden Arps–get the grease.
As has been previously reported, one of the investors in the consortium that won the bidding to buy 65 percent of Skype from eBay (EBAY)–which itself had bought it in 2005 from Zennström and Friis–has withdrawn its investment and involvement as part of the settlement.
That would be London-based Index Ventures, which was a smaller player in the group with–ironically–a three percent stake.
Nonetheless, Index had an outsized fight going on with Zennström and Friis.
That’s due to their ire, aimed at Index’s Mike Volpi, who was CEO of Joost, the failed online video site the pair founded.
After Zennström and Friis lost their own bid to buy back Skype, they quickly sued Index and Volpi via tech companies they control, Joltid and Joost, in Delaware.
The pair alleged that Volpi used confidential information gleaned from his time as Joost CEO to unfairly help the winning consortium acquire Skype.
The lawsuit was particularly vindictive, using embarrassing emails and making pointed accusations about Volpi plotting all kinds of nefarious schemes, like Lady Macbeth on steroids, on his way out of Joost.
I am not sure what law one can break for wanting to leave a job or how much damage one can do to an already failing business, but that did not stop Zennström and Friis from trying to pin some specious accusations on Volpi.
(I wouldn’t have been surprised if they had accused Volpi of being responsible for Balloon Boy.)
But such legal attacks obviously worked, making Index loath to stay in an economically less attractive deal with lessened influence over Skype.
And eBay and the other investors obviously wanted closure, so they could get on with the work of turbocharging Skype.
The fighting between Index and the Skype founders was just one part of the legal morass.
Zennström and Friis had already been in a battle over software licensing issues with eBay in London courts.
They also filed suit again in California against Skype and eBay for copyright violations.
For good measure, the pair added the winning buyout group, including Index, Silver Lake Partners, Andreessen Horowitz and the Canada Pension Plan Investment Board, in that lawsuit.
(In legalese–and in honor of the Yankees winning the World Series tonight–such massive lawsuit-making is called covering all your bases!)
Presumably, those same mouthpieces–who have been slagging the other side for weeks–will now be at the ready with honeyed tales of reconciliation tomorrow.
Call me cynical, but we’ll see how long that lasts.
“[Zennström and Friis] got what they wanted by using Volpi as a pawn and the lawsuits as a club,” said one person close to the situation. “Everyone is moving on, but not everyone is going to forget what they did to get what they wanted.”