Ebay pays up for new pal
Published: 08 Jul 2002 13:56 BST
Auction giant eBay is acquiring online payments company PayPal in a deal valued at $1.5bn, the companies said on Monday.
PayPal will continue to offer its service as an independent brand, eBay said. PayPal, which went public earlier this year, allows consumers to make and accept payments over the Internet without using a credit card. The bulk of its business comes from eBay auctions.
EBay offers a competing service, eBay Payments by Billpoint, which will be phased out after the deal closes
Analysts had long expected some sort of deal between the two companies. EBay said on Monday that "the combination of the two networks should expand both platforms while minimising shared operational costs. Strengthening the marketplace and realising the efficiencies made possible by the acquisition will increase the value of both businesses."
"EBay and PayPal have built vibrant user networks on the Internet," PayPal chief executive Peter Thiel said in a release. "The beauty of this deal is that it will allow us to offer our communities new tools and added flexibility to do more business. Integrating our services is a win-win situation for millions of current and future online consumers."
PayPal actually reported reaching operating profitability before it went public, and last month the company said it expected to report second-quarter revenue of between $53m and $54m, with pro forma earnings per share of between 8 cents and 9 cents.
PayPal does bring some problems to the table, however; a few states have begun to question whether the business constitutes illegal banking or money-transmitting services. PayPal also faces several class-action lawsuits from customers who claim the company illegally froze their accounts.
The deal calls for PayPal shareholders to receive 0.39 shares of eBay for each share of PayPal. That values each PayPal share at about $23.61, based on eBay's Friday closing price, a 15 percent premium over PayPal's Friday close.
The purchase price will include around $18m in acquisition-related costs. EBay expects the deal to be a boost to pro forma earnings, but, because of charges of $13m per quarter for stock-based compensation and amortisation of intangible assets, the deal will cut into net earnings per share.
Separately, eBay on Monday announced preliminary results for its second quarter, posting a profit of $54.3m, or 19 cents per share, on sales of $266m. Analysts had been expecting the company to report a profit of 17 cents per share on sales of $264m, according to First Call. EBay said it was particularly helped by its US auctions business, which grew 48 percent year over year. International sales rose 148 percent year over year.
EBay will announce complete second-quarter results on 18 July.
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