In a new 13D filing with the Securities and Exchange Commission, PayPal Holdings Inc (NASDAQ:PYPLV) has disclosed holding 7.05 million shares in Xoom Corporation (NASDAQ:XOOM), which represent 17.9% of Xoom’s outstanding common stock. In addition to that, the filing revealed that both companies had entered into an Agreement and Plan of Merger, under the terms of which, each outstanding share of Xoom Corporation will be canceled and converted into the right to receive $25.00 in cash. The transaction price yields a premium of 32% above Xoom’s average price over the past three months and has a total value of around $890 million.
PayPal Holdings Inc (NASDAQ:PYPLV) is a worldwide online payments system that is processing almost 12.5 million payment for its customers every day. PayPal was established by a group that included Elon Musk and venture capitalist Peter Thiel. The company went public in 2002 and shortly after, it was acquired by eBay for $1.5 billion to handle its transactions. PayPal provides an efficient online money transfer platform that helps people send money without sharing financial information. The company is a global payment platform, with 165 million active customer accounts, that is available in 203 markets and allows its customers to get paid in more than 100 currencies, withdraw funds and hold balances in their PayPal accounts. However, even though eBay’s acquisition of PayPal made a lot of sense initially, as PayPal became its default payment processing service, activist investor Carl Icahn has been arguing that PayPal’s development was being hindered by eBay and was pushing for a spin-off. Shortly after eBay had announced plans to spin-off PayPal unit, Mr. Icahn suggested that it should acquire another payment company in order to strengthen its position on the market.
As already mentioned above, PayPal Holdings Inc (NASDAQ:PYPLV) is in the process of being spun-off from eBay as the result of eBay’s spin-off decision last year. Thus, PayPal will be an independent, publicly-traded company listed on the NASDAQ Stock Market under the ticker symbol “PYPL” upon the completion of the separation on July 20. As the board formally approved the split, shareholders will receive one share of PayPal for each share of eBay. Among the largest shareholders of eBay is Carl Icahn, who owns 46.27 million shares as of the end of March, followed by Barry Rosenstein‘s JANA Partners with 20 million shares. Overall, according to the last round of 13F filings, a total of 90 funds, among those that we track, held $11.86 billion worth of eBay’s stock.
Let’s now move on to PayPal’s acquisition of Xoom. Xoom Corporation (NASDAQ:XOOM) is a leading digital money transfer provider that allows its customers to send money, pay bills and send mobile reloads to family and friends around the world in a very secure, fast and cost-effective way. Therefore, the acquisition will enable PayPal to expand its digital payment business and offer a larger range of services worldwide. According to a statement, the President of PayPal Holdings Inc (NASDAQ:PYPLV), Dan Schulman, believes that the acquisition of Xoom will enable PayPal to enter essential and growing adjacent marketplace, while Xoom’s presence in 37 countries will enhance the expansion in these markets. There are a few strategic benefits from the acquisition of Xoom Corporation (NASDAQ:XOOM), which might eventually boost PayPal’s growth in the future. One of the main benefits of the acquisitions is the extent of PayPal’s offering to its customers by cross-selling Xoom’s services. At the same time, the deal is anticipated to assist Xoom in expanding into new markets by leveraging PayPal’s sizable international network.
PayPal has been steadily growing and the Street has long considered that its spin-off will command a higher valuation. In this way, eBay and PayPal’s valuations upon the completion of the separation might be higher than their valuations as one entity. Moreover, there is a chance that some of the current shareholders might jettison their eBay positions and hold only shares of PayPal. So we might see some short-term upward pressure on PayPal and downward pressure on eBay. Additionally, PayPal’s merger with Xoom Corporation (NASDAQ:XOOM), which could potentially drag market share from other remittance companies as the “one-stop shop” aspect through one service provider might be tempting to some customers, might put even more upward pressure on PayPal shares. Thus, PayPal Holdings Inc (NASDAQ:PYPLV) might really represent a great buying opportunity for worldwide investors.
Disclosure: None
