By : Admin

Few of us may be aware with this fact, but those who are not, let me inform it to you that the auction giant eBay has decided to use pay pal as its electronic payment system. eBay has acquired online payment company PayPal in a deal which valued at $1.5 billion!

First of all, let us know what PayPal is all about? PayPal allows consumers to make and accept payment to one another over the Internet without any use of credit card. A payer deposits money in a PayPal account using a credit card, bank account or existing PayPal account. And then it cut the recipient a check for the amount or transfer the money to another bank account. The recipient can also leave the money in the PayPal account where it earns money. Most of the business of PayPal comes from the eBay auctions.

With this acquisition, eBay will be gaining a complete control over the popular and strong electronic payment service, PayPal. In the words of Merrill Lynch analyst Justin Baldauf, “PayPal is the ‘gorilla’ in the online payment market, as eBay is the ‘gorilla’ in the online auction market.”

According to eBay CEO Meg Whitman, “PayPal acquisition will help both customers and the company’s bottom line by speeding up the payment process. Buyers and sellers complete transactions days faster using electronic payments”.

The two companies have always maintained a symbiotic relationship, as they both brought business to and competed with one another. eBay’s biggest goal right now should be improving PayPal’s somewhat poor reputation for customer services.

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.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.

This acquisition is a kind of extension of eBay’s trading platform as 60% of the fund transfer technology company’s revenues already came from eBay. With this deal eBay would suspend its own payment system.

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.

eBay will likely profit from a portion of all transactions processed by PayPal, but most agree profits will significantly gap the valuation of $1.5 billion. eBay’s take is that the combination of the two networks should expand the eBay and PayPal platforms, while minimizing shared operational costs.

The beauty of this deal is that it will allow communities to enjoy new tools and added flexibility to do more business!

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