EBay's PayPal to buy VeriSign unit for US$370 million

EBay Inc's PayPal will acquire VeriSign Inc's payment processing business for about US$370 million to expand services to merchants.

PayPal will pay cash and EBay stock for the VeriSign unit, EBay and VeriSign said on Monday in a statement. The agreement also calls for EBay to buy VeriSign technology that protects online shoppers against identity theft by giving customers special one-time passwords.

The acquisition of the VeriSign business, which processed more than US$40 billion in payments last year, will add US$100 million to EBay revenue next year and add a customer base of 100,000 small and medium-sized businesses.

EBay chief executive Meg Whitman is trying to make EBay, the largest Internet marketplace, more convenient and secure to attract new shoppers to its base of 65 million active users.

"In working with PayPal and EBay, we are going to be offering them our security technology allowing them to offer their users stronger forms of authentication," VeriSign chief executive Stratton Sclavos said in an interview.

EXPANSION GOALS

EBay acquired PayPal, its biggest rival in electronic-payment processing, in October 2002 to include transaction fees from PayPal's nearly 79 million accounts. The addition of VeriSign customers will help PayPal expand its "off-EBay business," PayPal president Jeff Jordan said in an interview.

EBay accounts for US$40 billion to US$50 billion of the estimated US$330 billion in global e-commerce payments, spurring PayPal to seek processing revenue from transactions that don't involve EBay, Jordan said.

The VeriSign unit accounts for about 4 percent of the company's revenue, Sclavos said.

The transaction is expected to close in the fourth quarter.

Shares of EBay, based in San Jose, California, rose US$0.56 to US$40.46 at 4pm in New York Stock Exchange composite trading on Monday.

Shares of California-based VeriSign rose US$0.96 at 5:40pm after regular NASDAQ trading. They gained US$0.11 to US$20.04 at 4pm. Yesterday's announcement came after the close of regular US trading.

INVESTOR CONCERN

EBay's shares are headed for their first annual decline in five years, signaling investor concern that revenue growth may slow.

EBay agreed last month to buy Skype Technologies SA for US$2.6 billion, its largest acquisition, to enter the fast-growing market for Internet phone service. The company plans to offer the free service on its auction site to improve communication and quicken transactions, chief financial officer Rajiv Dutta said in a Sept. 12 interview.

In August, PayPal reduced processing fees on inexpensive digital items such as US$0.99 mobile-telephone ring tones and music downloads. The move was designed to attract new customers by allowing merchants to process payments under US$2 at a rate of 5 percent plus US$0.05 per transaction. Under the plan, consumers don't have to sign up for annual PayPal subscriptions or fund a pre-paid account.