PayPal Buys Money Transfer Provider Xoom

PayPal has annouced that it had struck a deal to buy Xoom, a digital money transfer provider, to broaden its services across the globe.

PayPal would pay Xoom’s shareholders $25 a share, or about $1.09 billion. Excluding Xoom’s cash and short-term investments and including its debt, PayPal would end up paying about $890 million for the company.

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. PayPal is set to be spun off from eBay so that it can attract more online merchants, which have shied away because they see eBay as a competitor.

“Acquiring Xoom allows PayPal to offer a broader range of services to our global customer base, increase customer engagement and enter an important and growing adjacent marketplace,” PayPal president Dan Schulman said in a press release. “Xoom’s presence in 37 countries — in particular, Mexico, India, the Philippines, China and Brazil — will help us accelerate our expansion in these important markets.”

A New York Times article Wednesday said that Xoom is part of a wave of upstarts challenging traditional money transfer businesses like Western Union in the enormous global remittances market, which the World Bank valued this year at about $600 billion. Frequently used by immigrants to wire money to family in their home countries, traditional global remittance services are often cash-based and rely on money agents in retail locations to complete transfers abroad.

PayPal’s know-how and relationship with banks and regulators in various countries would allow Xoom to expand its digital transfer service, Xoom’s chief executive John Kunze told the Times.

“You can imagine us getting a global footprint much faster and with much less execution risk,” Kunze said.

Due to anticipated one-time integration costs, the completion of the transaction is expected to be slightly dilutive to PayPal’s non-GAAP earnings per share for FY 2016, the company said. PayPal intends to fund the transaction with cash on its balance sheet. Upon closing of the acquisition, expected in the fourth quarter, Xoom would operate as a separate service within PayPal.

SOURCE:CFO