Shares of Xoom, the provider of digital money transfers, are zooming about 22 percent higher to $25.29 this morning, a day after PayPal said it is buying the San Francisco company for $890 million.
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The purchase price has been fixed at $25 a share in cash, which represents a premium of 21% over Xoom’s closing price of $20.70 on Wednesday.
PayPal said the deal, expected to close in the fourth quarter of 2015, will slightly hurt its adjusted earnings per share for 2016.
The analyst firm says Xoom reportedly processed over $7billion n in transactions in 2014 with a core U.S. customer base of only 1.3 million consumers, and although PayPal has always had a strong presence in the P2P space this has primarily been for domestic transactions only. The acquisition represents the biggest deal for the company since its roughly $800 million takeover in 2013 of payments company Braintree, which includes Venmo.
Enables horizontal expansion into new markets: Allows Xoom to expand its portfolio of send-markets by leveraging PayPal’s wider worldwide network.
The global remittance business had grown online due to the number of people living in the US that sends money back to family members across Latin America.
As independent companies, eBay and PayPal “will each have a sharper focus and greater flexibility to pursue future success in their respective global commerce and payments markets”, he added.
Xoom will operate as a separate entity outside of PayPal once the merger is completed.
The move provides PayPal entry into the profitable and growing remittances market of Xoom in emerging economies of India, China and Brazil, among others. Most interestingly, investors are clearly betting on a better offer for Xoom coming along and a resultant bidding war between PayPal and the new entrant(s), judging by the shares pushing past PayPal’s offering rate. Xoom customers can also pay bills using the service. In an earlier article, it said the incident involved employee impersonation and fraudulent requests targeting the company’s finance department, resulting in the transfer of $30.8 million in corporate cash to overseas accounts.
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PayPal offers peer-to-peer payments, but it’s also known for its merchant payment service and as a check-out option when shopping online.
