Technology Stocks : PayPal Inc. - PYPL
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To: AJ Berger who wrote (56)9/14/2002 2:31:47 PM
From: AugustWest  Read Replies (1) of 121
PayPal Suits Shadow EBay Merger Bid

SAN JOSE, Calif., Sep 14, 2002 (AP Online via COMTEX) -- Legal challenges by
shareholders and a major credit card company have thrown a shadow over PayPal
Inc.'s $1.5 billion acquisition by online auction giant eBay.

PayPal has gotten so big, so quickly - growing to about 18 million members since
it launched in late 1999 - that shareholders think the merger price undervalues
the company, which uses e-mail to deliver payments between buyers and sellers on
the Internet.

At least a half-dozen shareholder lawsuits have been filed. The shareholder vote
on the merger is scheduled for Oct. 3.

Banks, meanwhile, see PayPal as a threat to the billions of dollars in interest
and fees they get from credit card users and merchants.

America's third-largest credit card company, First USA Bank, a subsidiary of
Bank One Corp., says PayPal is violating its patents on a "Cardless Payment
System," which allows computer users to make financial transactions without
having to remember their account information.

The suit, filed in federal court in Delaware on Sept. 6, claims PayPal's
infringement has caused it irreparable harm.

PayPal says it hasn't violated any patents, although it has acknowledged the
possibility of an intellectual property dispute over its core technology. EBay
would be vulnerable to any patent claims against PayPal over Internet payment
systems, according to the merger agreement submitted to the Securities and
Exchange Commission in July.

The shareholders who have sued call eBay's offer "grossly inadequate." Their
theory: since sales on eBay account for two-thirds of PayPal's business, the
auction site was able to pressure PayPal to sell out at a bargain price.

Both eBay and PayPal have said that the claims raised in at least a half-dozen
shareholder suits are baseless.

The first stockholder suits were filed in Silicon Valley and Delaware within
hours of the July 7 merger announcement, alleging that PayPal officers and
directors were enriching themselves at the expense of smaller shareholders.

PayPal shareholders would receive 0.39 shares of eBay for every share of PayPal.
EBay's offer valued$23.61 per share, or $1.5 billion, on the day of the
announcement, and the price has roughly held since then. That represents an 18
percent premium over where pay PayPal shares closed before the deal was

But plaintiffs complain the average premium in similar stock-for-stock mergers
is 38 percent, and that PayPal insiders will still make huge windfalls from the
deal - including $167 million for PayPal co-founder Elon Musk.

Still, because of PayPal's legal problems, common shareholders may in fact
benefit from a merger with a bigger, more stable and better-financed company,
said James VanDyke, who follows online financial and payment services for
Javelin Strategy and Research in Pleasanton.

For "PayPal to allow themselves to be acquired by eBay at this time and price
was not a bad idea," VanDyke said.

Associated Press Writer

Copyright 2002 Associated Press, All rights reserved


APO Priority=r
APO Category=1700
(CO:Bank One Corp; TS:ONE; IG:BNK;)


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