PayPal shares plunged on Tuesday afternoon as payments companies Stripe and Advent International said they would not acquire PayPal. The decline in PayPal shares was around 12.7 percent.
The big drop in PayPal shares and a strong rally in the past few months were followed by takeover speculation and better-than-expected financial results. Bloomberg also reported last week that Stripe-Advent no longer wants to do a deal - a blow to hopes of one of the largest leveraged buyouts ever in the fintech space.
A consortium had made an offer of $60.50 per share, totaling PayPal at more than $53 billion. In July, Reuters reported that the offer was 28% higher than PayPal's then-share price and would have been backed by about $50 billion in committed financing from banks.
But PayPal's board refused to accept the initial offer, the report said. Negotiations continued about the possibility of a higher offer but those talks have now broken down, said the person with knowledge of the situation. Regulatory and financing problems were among the challenges faced by the proposed deal, according to Reuters.
The lack of a deal has a big impact on investors because takeover expectations had been a big factor in PayPal’s recent stock performance. PayPal shares had soared 40 percent from a year ago on acquisition speculation and better-than-expected second-quarter earnings. PayPal’s market value then was around $52.6 billion.
The second-quarter results had also spurred investor sentiment. PayPal has been trying to turn around the company’s growth and compete with other companies in a crowded space when the digital payments business has become more crowded. Apple and Alphabet are now forcing the company to redesign products and upgrade its payment technology.
The company is also in transition in leadership. Enrique Lores, who took over as chief executive in March, is appointed to drive PayPal’s strategy and set out financial targets for investors. It has reorganized its business and made it much easier for it to tell investors how well its products are performing.
The immediate question for investors is whether PayPal can maintain the gains achieved during the takeover-led rally without an acquisition premium supporting the stock. The after-hours selloff also indicates that at least some investors had priced the possibility of a transaction into PayPal’s valuation.
The situation also does not necessarily rule PayPal out for future interest. Stripe-Advent states that the company could reconsider its position if circumstances change, but at present it is not a company that has an agreement to deal with.
PayPal is now on the market on its own fundamentals. The sharp after-hours drop shows how much takeover uncertainty had affected the stock and is a chance to re-evaluate PayPal’s earnings, turnaround approach and ability to compete in an increasingly competitive global payments market.
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