eBay buying online payment provider PayPal for $1.5 billion, to end eBay's in-house program

Monday, July 8th 2002, 12:00 am
By: News On 6

SAN JOSE, Calif. (AP) _ Internet auction giant eBay Inc. said Monday it is buying online payment facilitator PayPal Inc. for $1.5 billion in stock.

The long-rumored deal would mark the end of eBay's own, rival electronic payment program, called eBay Payments by Billpoint.

Separately, eBay released second-quarter earnings early, posting results that beat Wall Street expectations. EBay's net profit more than doubled to $54.3 million, or 19 cents per share, on revenue of $266 million, in the quarter ended June 30. Wall Street analysts had been expecting profits of 17 cents a share, according to Thomson Financial/First Call.

Mountain View, Calif.-based PayPal lets buyers make payments online through credit cards and bank accounts and sends confirmation of the funds to sellers via e-mail. It charges a fee based on the amount transferred. About 60 percent of its business comes from eBay users.

Though PayPal began with just 24 experimental users in October 1999, it has quickly become a profitable company.

Although regulators in some states had questioned whether PayPal might need to be licensed as a bank _ a potentially worrisome prospect for PayPal's growth _ the company had one of this year's best initial public offerings, with its stock rising 55 percent on its first day of trading in February.

``EBay and PayPal have complementary missions. We both empower people to buy and sell online,'' said Meg Whitman, eBay's chief executive. ``Together we can improve the user experience and make online trading more compelling.''

She told financial analysts Monday that the deal ``brings together two companies in a way that will benefit our users.''

San Jose-based eBay hopes to close the acquisition by the end of the year if regulators and shareholders approve, and then phase out eBay Payments by Billpoint, which never proved as popular with eBay users as PayPal.

The deal calls for PayPal shares to be converted into 0.39 shares of eBay, which at Friday's closing prices values PayPal at $1.5 billion.

The offered price would give PayPal shareholders $23.61 of eBay stock for each PayPal share, based on eBay's closing price of $60.55 on Friday on the Nasdaq Stock Market. That is an 18.1 percent premium over PayPal's closing price of $20 a share Friday on Nasdaq.

While releasing the essentials of its second-quarter earnings, eBay will not release a full earnings report until July 18. PayPal's results are due July 24.