The FINANCIAL — PayPal Holdings Inc. has agreed to buy online money-transfer company Xoom Corp. for $890 million in an all-cash deal, marking incoming chief Dan Schulman’s first big move ahead of his company’s planned spinoff from eBay Inc. later this month, according to Nasdaq.
The purchase will enable PayPal to tap into the lucrative market for remittances. Xoom’s online service lets people send money internationally, often via mobile phone, typically charging $5 to $10 depending on the size of the exchange, as well as pocketing the difference in the exchange rates it sets. Xoom customers can also pay bills using the service.
PayPal has been pushing hard into mobile, where customers are more frequently making everyday purchases. The company has touted its peer-to-peer money transferring division Venmo, used primarily by smartphone-touting “millennials,” and earlier this year bought app developer Paydiant.
“I believe remittances are ripe for disruption,” Mr. Schulman said. “Among our customers, there is a tremendous desire to send money internationally.”
Xoom, founded in 2001, pulled in $159 million in sales last year, a 30% jump from 2013. But it swung to a loss of $ 26.3 million in 2014, weighed down by a big charge in the fourth quarter tied to a suspected criminal fraud targeting the company’s finance department. The company said in January it launched an investigation into its internal controls and its chief financial officer stepped down.
PayPal is buying San Francisco-based Xoom for $25 a share, representing a 21% premium to its 4 p.m. trading price of $ 20.70 on Wednesday. Xoom’s stock jumped 21% in after-hours trading to $25.10.
The company said it is planning to keep all of Xoom’s roughly 300 employees, as well as its chief executive, John Kunze.
PayPal’s move comes as it is planning for life as a publicly traded company 13 years after it was folded into eBay in a roughly $1.5 billion deal. In this year’s first quarter, PayPal for the first time outpaced eBay’s marketplace division in sales.
Based in San Jose, Calif., PayPal will complete the split on July 17 but will remain closely tied to eBay. The companies have a five-year operating agreement that dictates, among other things, how much of the transactions on eBay’s namesake site should be funneled through PayPal.
For the 12 months ended March 31, Xoom had more than 1.3 million active customers who sent about $7 billion via Xoom. Mr. Schulman said most of those would be new customers to PayPal.
PayPal said it expected to complete the acquisition in this year’s fourth quarter. The acquisition represents the biggest deal for the company since its roughly $800 million takeover in 2013 of payments company Braintree, which includes Venmo.
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