eBay to Acquire PayPal
By Ina Steiner
EBay announced this morning that it has agreed to acquire PayPal, Inc. The acquisition, which is subject to various stockholder, government and regulatory approvals, is expected to close around year-end 2002.
eBay will acquire all of the outstanding shares of PayPal in a tax-free, stock-for-stock transaction using a fixed exchange ratio of 0.39 eBay shares for each PayPal share. Based on eBay's stock price on July 5, 2002, the acquisition is valued at $1.5 billion. According to preliminary estimates, the recognized purchase price is also expected to include approximately $18 million for acquisition-related costs. The calculation of the final purchase price may vary significantly from these estimates, and will depend upon a number of factors, including the length of time necessary to close the transaction, and the value of eBay stock at closing.
The transaction is expected to be immediately accretive to eBay's pro-forma earnings per share. On a GAAP basis the company will initially incur incremental charges for stock-based compensation and amortization of intangible assets of approximately $4 million and $9 million per quarter, respectively. Accordingly, eBay expects the transaction to be dilutive on a GAAP reported basis.
"eBay and PayPal have complementary missions. We both empower people to buy and sell online," said Meg Whitman, President and CEO of eBay. "Together we can improve the user experience and make online trading more compelling. We can also capture greater value from the e-commerce opportunities occurring both on and off our site."
"eBay and PayPal have built vibrant user networks on the Internet," said Peter Thiel, Founder and CEO of PayPal. "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, which will continue to operate as an independent brand, is a leading online payments solution. Approximately 60% of PayPal's business takes place on eBay, making it the most preferred electronic payment method among eBay users. The remaining 40% occurs primarily among small merchants who constitute a potential new audience for eBay. Likewise, eBay's community of 46 million users worldwide represents a growth opportunity for PayPal. eBay's current payment service, eBay Payments by Billpoint, will be phased out after the close of the transaction.
PayPal will continue to provide a variety of consumer services, including its popular Web Accept product, which makes it possible for independent online merchants to accept payment directly at their web sites. In view of the uncertain regulatory environment surrounding online gaming, eBay plans to phase out PayPal's gaming business after the transaction closes. Gaming providers who use PayPal will have ample opportunity to find alternative payment solutions.
As part of today's announcement, eBay is also releasing results for the quarter ended June 30, 2002. Consolidated net revenues for Q2-02 are approximately $266 million, GAAP net income totaled $54.3 million or $0.19 per diluted share, with a gross margin of 83% and pro forma operating margin of 30%. The company also announced that pro forma earnings per share was $0.19. The company's previously issued guidance estimated that revenues would be in the range of $260 to $265 million and that pro forma earnings per share would be $0.17. These stronger than expected results were highlighted by an accelerating US transaction business, which grew 48% year-over-year, combined with year-over-year growth from international operations of 148%.
On June 12, 2002, PayPal announced that its Q2-02 revenues could range between $53 million and $54 million, and pro forma earnings per share could range between $0.08 and $0.09. Additionally, PayPal estimated that its total payment volume could range from $1.61 billion to $1.63 billion.
eBay's complete second quarter earnings results will be announced on July 18, 2002. PayPal's second quarter results will be announced on July 24, 2002.
About the author:
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to firstname.lastname@example.org.
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