(Bloomberg)—EBay Inc.’s transaction business PayPal agreed to purchase Xoom Corp., a service for sending international money transfers, in a deal valued at $890 million.
PayPal will acquire Xoom for $25 per share in cash, a 21% premium to Wednesday’s closing price of $20.70, the San Jose, Calif.-based company said in a statement. The purchase is expected to slightly reduce PayPal’s earnings per share for fiscal 2016, the company said.
The acquisition puts PayPal in the international money transfer market with Western Union Co., the dominant player in what PayPal president Dan Schulman estimated is a $600 billion market.
“It’s an industry that’s ripe for disruption,” Schulman, who will become chief executive officer of the stand-alone PayPal, said in an interview.
Xoom, based in San Francisco, enables U.S. customers to send as much as $3,000 in a single transaction to friends and family around the world using their mobile phones, tablets or computers. Its 1.3 million users transferred $7 billion to 37 countries, including Mexico, China and India, in the 12 months ended March 31, the company said. Xoom’s first-quarter revenue gained 24% to $44.4 million.
The purchase, expected to close in the fourth quarter, will allow PayPal to sell international transfers to its U.S. customer base of 68 million, many of whom need the service and don’t overlap with Xoom’s users, Schulman said.
About 90% of Xoom’s business is from repeat customers and 60% of the transactions are made from mobile devices, Schulman said.
EBay announced plans to spin off PayPal last year following criticism from activist investor Carl Icahn that slowing growth in the online marketplace was holding back its payments division. The split is scheduled to occur later this month.
At least one analyst expects PayPal to go on a buying spree. “Freed from the shackles of eBay with no debt, $5 billion in cash, and new shareholders through its public listing on Nasdaq, PayPal will likely remain highly acquisitive as it seeks to expand its global capabilities,” Gilles Ubaghs, senior analyst, financial services technology at Ovum, said.
“With significant momentum behind it due to its separation from eBay, PayPal is rapidly pursuing a significant global strategy to expand both its payments capabilities and geographic spread,” according to Ubaghs. “This includes an expansion of its consumer focused capabilities, highlighted by its acquisition of Xoom which gives PayPal significant presence in the cross-border remittance space, while also providing it with a significant foothold in key emerging markets.”
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