Xoom shares skyrocket more than 20% after PayPal bid

PayPal, a subsidiary of eBay, will pay $25 per share of Xoom in what amounts to a premium of 32 percent over the stock’s average price over the past three months.

Xoom enables customers in the United States to send money to and pay bills for people around the world using their mobile phones, tablets, and computers.

For those unfamiliar with Xoom, they are a startup company that specializes in making money transfers in worldwide markets.

“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. At the time, its CFO resigned, though Xoom said his exit wasn’t the result of a disagreement with the company. With the acquisition PayPal’s market share has seen a steep rise with an estimated value of $600billion a year. Excluding Xoom’s cash and short-term investments and including its debt, PayPal would end up paying about $890 million for the company.

Xoom has more than 1.3 million customers who are across 37 countries.

Meanwhile, Xoom also gets access to PayPal’s customers.

While the acquisition is likely to be dilutive in its first full year (2016), JMP believes PayPal can help Xoom expand to additional countries and markets more rapidly, while also broadening PayPal’s product offering.

PayPal’s ownership of smaller payments firm Braintree gives it access to the latter’s Venmo app, which offers P2P money transfers within the U.S, serving a distinct market from remittances.

In fending off its newer as well as larger competitors, eBay announced that it would spin off PayPal into a separate company in September 2014.

The deal is set to be closed during the fourth quarter of 2015, months after the planned split with Ebay on July 17. Though things were rosy for PayPal, it is important to remember that the online payments business is moving rapidly to the mobile devices platform, where PayPal does not have a dominant presence. The investigation further seeks to determine whether the senior management of Xoom are entering into this deal for their own self-interests to the detriment of the company’s shareholders.