Auction website eBay.com (EBAY) and Chinese Internet company Tom Online (TOMO) have announced a joint venture agreement in China.

eBay has basically thrown in towel with this agreement–the two companies will combine expertise to build a new China marketplace in 2007 to compete with China's top auction website, Taobao.com.

"eBay has helped pioneer e-commerce in China, and by combining our expertise with that of a strong local partner like Tom Online, we are even better positioned to participate in this growing market," said Meg Whitman, President and CEO of eBay. "This agreement is a sign of our continued commitment to delivering the best online buying and selling experiences in China."

"eBay is one of the world's most recognized e-commerce brands and Tom Online has a proven track record of delivering outstanding services to Chinese consumers," said Wang Lei Lei, CEO of Tom Online. "The new online marketplace to be built by the joint venture will provide an enhanced user experience, tailored for the China market, and will capitalize on our companies' strengths in the emerging m-commerce sector."

eBay will have a 49% stake in the joint venture, and Tom Online will have a 51% stake. Both companies will make financial contributions to the venture, including a US$40 million cash contribution from eBay and US$20 million in financing from Tom Online. If mutually agreed, the two companies can equally share in an investment of up to an additional US$10 million. In addition, eBay will also contribute its EachNet subsidiary, while Tom Online will contribute local management expertise, technology, and brand. The formation of a joint venture will foster synergy among user communities and distribution channels, enhance rapid product innovation capabilities on a local platform, and promote mobile integration.

Wang Lei Lei will be chief executive officer of the JV, and eBay will also continue to grow the China Development Center for worldwide product development under the local leadership of recently appointed General Manager Daniel Lee, a former Yahoo Asia CTO. eBay expects to continue to increase headcount in China into 2007 as it evolves its presence in the market.

eBay does not expect this partnership to have a material impact on eBay's financial guidance as issued in connection with its third quarter earnings release on October 18, 2006.

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