July 11, 2002 11:50 AM PDT

Shareholders sue PayPal, eBay

The PayPal-eBay merger has hit an early snag: Two shareholder lawsuits have been filed against the companies seeking to block the deal.

The lawsuits, each filed in Delaware Chancery Court earlier this week on behalf of PayPal shareholders, charge that the deal represents a breach of the companies' fiduciary duty to those shareholders and that the price eBay is paying for PayPal is unfair and inadequate, the companies said in separate regulatory filings on Thursday.

eBay representatives did not return calls seeking comment about the lawsuits. But in its regulatory filing, the company said it would contest them.

"eBay believes that the lawsuits are without merit and intends to defend itself vigorously," the company said.

PayPal echoed that opinion.

"(The lawsuits) are without merit and we will fight them vigorously," said PayPal spokesman Vince Sollitto. "These types of legal filings are common but rarely successful."

The shareholders' attorneys did not return calls seeking comment.

eBay announced on Monday an agreement to acquire PayPal. The company offered to pay about 0.39 shares of eBay stock for each share of PayPal, valuing the deal at about $1.41 billion at eBay's current share price. PayPal's current market capitalization is about $1.39 billion.

The deal came just two weeks after PayPal completed a controversial secondary public offering that saw its investors and executives sell 6 million shares of the online payments company. That offering came on the heels of the company's successful initial public offering in February.

PayPal has been no stranger to legal controversies. The company is facing several class-action suits filed on behalf of customers who charged that PayPal illegitimately froze their accounts. PayPal also faces a patent suit filed in May by Tumbleweed Communications.

eBay's move to acquire PayPal follows the failure of its rival payment service, Billpoint, to gain ground against PayPal.

 

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