EBay makes bid for PayPal

EBay Inc. said today that it has agreed to buy online payment provider PayPal Inc. in a stock swap valued at $1.5 billion.

The auction powerhouse said in an announcement that it hopes the deal will make buying and selling merchandise online even more convenient for its 46 million worldwide users by providing them with an integrated payment system.

The acquisition, which is expected to close by the end of this year, is subject to approval by stockholders and regulatory agencies. EBay said it has agreed to acquire all outstanding shares of Palo Alto, Calif.-based PayPal in a tax-free, stock-for-stock transaction. The $1.5 billion estimated purchase price is based on the value of PayPal's stock on July 5. The actual purchase price may vary depending on when the transaction closes and fluctuating share values.

Nearly 60% of PayPal's business already takes place on eBay, while the remaining 40% is handled by small merchants that eBay hopes to woo to its site, the companies said. PayPal is also looking to widen its scope by accessing eBay's broad user base, the companies added.

Under the terms of the proposed deal, PayPal would continue to operate as an independent brand, but would phase out its gaming business due to the uncertain regulatory environment surrounding online gaming, the companies said.

For its part, eBay plans to discontinue its current payment service, eBay Payments by Billpoint, at the close of the transaction, the company said.

San Jose-based eBay said that it expects to incur incremental charges for stock-based compensation and amortization of intangible assets of $4 million and $9 million per quarter if the deal goes through.

Scott Devitt, an analyst at Legg Mason Inc. in Baltimore, said that when eBay acquired San Jose-based Billpoint Inc., eBay officials assumed they would do away with PayPal. Instead, Paypal became eBay's biggest competitor on the payment side.

The deal to acquire PayPal is a positive one for eBay because rather than having to continue to engage in a pricing war with PayPal -- a war it was losing -- eBay can now integrate PayPal into its offerings, said Devitt.

Computerworld's Linda Rosencrance contributed to this report.

Copyright © 2002 IDG Communications, Inc.

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