October 3, 2002 4:19 PM PDT

It's official: eBay weds PayPal

update PayPal is now officially a part of eBay, but the online payments company will be without its chief executive officer who led it into the merger.

eBay announced Thursday afternoon that it has completed its acquisition of PayPal. The announcement followed a shareholder vote Thursday morning in which holders of 65 percent of PayPal shares voted in favor of the merger.

eBay said also that PayPal CEO Peter Thiel has resigned. Matt Bannick, whom eBay named last month as its senior vice president in charge of global payments, will take on all of Thiel's responsibilities, the online auction giant said.

The merger pairs the dominant online auction company with the leading online payments company. eBay sellers posted 145 million listings to the company's auction sites during the second quarter, garnering $3.4 billion in combined sales. PayPal now has some 20 million registered account holders; about $1.5 billion in payments was sent to its business customers in the second quarter.

eBay agreed to buy PayPal in July, offering 0.39 eBay shares for each share of PayPal. eBay said in a statement that the transaction was valued at about $1.5 billion, the same price as when it announced the deal, even though the company's shares have fallen about $3.00 per share since then.

eBay did not explain the discrepancy in its release, and company representatives did not return calls seeking comment.

Despite the overwhelming approval of the merger, some shareholders did object to it, suing eBay and PayPal in an attempt block the acquisition. Two sets of cases are pending before state courts in Delaware and California. Attorneys representing the shareholders in those cases did not return calls seeking comment. It is unclear what effect, if any, the shareholder suits will have on the acquisition.

eBay said in a regulatory filing Thursday morning that state regulators signed off on the merger, clearing one of its final hurdles. State regulators essentially agreed to allow PayPal to transfer its money transmitter licenses in various states to eBay. These licenses, required by many states, allow companies to transfer money between people or companies. PayPal and eBay's online payment system Billpoint began acquiring money transmitter licenses earlier this year after states such as New York, California and Louisiana began investigating the legality of the two companies' services.

In August, eBay and PayPal announced that the merger had cleared scrutiny from federal antitrust regulators.

eBay's acquisition of PayPal follows its failed effort to establish Billpoint as a serious competitor to PayPal. As part of its acquisition of PayPal, eBay plans to shutter Billpoint. The company expects to complete the shut down of Billpoint during the first half of 2003, eBay said in its statement Thursday afternoon.

PayPal, like eBay's fixed-price marketplace, Half.com, will retain its name and operate as an independent brand, eBay said.

eBay expects PayPal to contribute $60 million to $64 million to its fourth-quarter net revenue. In contrast, eBay expects Billpoint to contribute just $6 million in revenue during the quarter, the company said. The company plans to break out the operating results of Billpoint and PayPal in its future earnings statements.

In addition to an upsurge in revenue, eBay also expects PayPal to contribute to its bottom line, at least on a pro forma basis. Excluding $14 million in acquisition-related costs, which include amortization of intangible assets and stock-based compensation, eBay expects PayPal will add $6 million to its pro forma net income.

For all of next year, eBay expects that its new payments division, which includes both Billpoint and PayPal, will bring in $300 million to $310 million in revenue. eBay predicts that the company as a whole will see between $1.77 billion and $1.83 billion in revenue next year.

Including merger-related costs, eBay expects PayPal's results will detract from its bottom line next year on a GAAP (generally accepted accounting principles) basis.

 

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