PayPal’s board believes the $53 billion takeover offer from Stripe and Advent International submitted on July 15 undervalues the company. According to a report by Reuters. The development could open negotiations on price, deal structure and regulatory risks.
PayPal has not formally responded to the $60.50 per share proposal, but the board’s initial assessment, according to the report, is that the offer does not fully reflect management’s value it could create by completing its turnaround. The offer represents a 28% premium to PayPal’s stock price before this approach went public.
Price is only one hurdle. PayPal managers are considering whether bidders can complete the financing, how regulators might view the merger and how long approval could take. Stripe and PayPal are two of the most widely used online payment platforms, together processing about $3.7 trillion annually. The board is also considering the possibility of other bidders emerging, although the size of the deal limits the pool of potential buyers. Reuters described Stripe and Advent as the “most serious bidder” to emerge so far.
The consortium has raised nearly $50 billion in funding from JPMorgan and Morgan Stanley, which also advise bidders. Stripe and Advent will contribute $17 billion in equity and own PayPal equally rather than splitting it up outright. Advent’s experience in the payments industry may become particularly important during an antitrust review. The private equity firm has previously invested in Worldpay, Vantiv and Nuvei, giving it a potential home for assets that regulators may ask the combined company to sell.
One possible solution could include spinning off the Braintree operation of PayPal or other companies and moving it to Advent. This would reduce the overlap between Stripe and Braintree, both of which provide payment infrastructure for large digital merchants. Block initially joined Stripe and Advent in taking on PayPal in April but pulled out before submitting the current offer.
For Stripe, PayPal will add a large consumer network, Venmo wallet, and recognizable payment credentials to its merchant processing platform. Stripe reportedly recruited Advent because financing a full equity contribution alone would be difficult. Advent also gives the group greater flexibility to restructure the deal around regulatory objections.
PayPal’s board must now weigh the certainty of the cash supply with the uncertain upside of CEO Enrique Lloris’ turnaround. Investors will look to PayPal’s July 28 earnings report for evidence that its branded payments operation is stabilizing after weaker guidance and slower growth made the company vulnerable to the approach.
PYMNTS has followed both sides of this account. Initial coverage is detailed Stripe-Advent bid worth $53 billionwhile subsequent analysis examined how a PayPal wallet could become Stripe’s next growth engine And why the show highlights the shift towards… Consumer relations and shopping habits. Previous reports have covered PayPal $1.5 billion operational overhaul and Venmo’s redesign is at the heart of its consumer strategy.
