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eBay Buys PayPal Payments Service

Internet auction giant eBay Inc. said Monday it is buying online payment facilitator PayPal Inc. for $1.5 billion in stock.

The long-rumored deal would mark the end of eBay's own, rival electronic payment program, called eBay Payments by Billpoint.

EBay, based in San Jose, California, said the purchase would allow buyers and sellers on its auction site to trade with greater ease, speed and security. It would also end the fierce rivalry between eBay and PayPal, as each tried to convince customers to use its payment service exclusively.

EBay said it would phase out its current payment service, eBay Payments by Billpoint, after the close of the deal.

PayPal already derives about 60 percent of its business from eBay, where its Web-based cash-transfer service has become the most popular method of payment, eBay said. The remaining 40 percent of PayPal's business occurs primarily among small merchants who present a potential new audience for eBay.

Separately, eBay released second-quarter earnings early, posting results that beat Wall Street expectations. EBay's net profit more than doubled to $54.3 million, or 19 cents per share, on revenue of $266 million, in the quarter ended June 30. Wall Street analysts had been expecting profits of 17 cents a share, according to Thomson Financial/First Call.

Mountain View, Calif.-based PayPal lets buyers make payments online through credit cards and bank accounts and sends confirmation of the funds to sellers via e-mail. It charges a fee based on the amount transferred. About 60 percent of its business comes from eBay users.

Though PayPal began with just 24 experimental users in October 1999, it has quickly become a profitable company and had one of this year's best initial public offerings, with its stock rising 55 percent on its first day of trading, in February.

"EBay and PayPal have complementary missions. We both empower people to buy and sell online," said Meg Whitman, eBay's chief executive. "Together we can improve the user experience and make online trading more compelling."

San Jose-based eBay hopes to close the acquisition by the end of the year if regulators and shareholders approve, and then phase out eBay Payments by Billpoint, which never proved as popular with eBay users as PayPal.

While both services offered invoicing and payments for online buyers and sellers, PayPal, unlike Billpoint, also offered a debit card and credit card, as well as a "shopping cart" system for small merchants' Web sites.

The deal calls for PayPal shares to be converted into 0.39 shares of eBay, which at Friday's closing prices values PayPal at $1.5 billion.

The offered price would give PayPal shareholders $23.61 of eBay stock for each PayPal share, based on eBay's closing price of $60.55 on Friday on the Nasdaq Stock Market. That is an 18.1 percent premium over PayPal's closing price of $20 a share Friday on Nasdaq.

While releasing the essentials of its second-quarter earnings, eBay will not release a full earnings report until July 18. PayPal's results are due July 24.

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