The giant deal canceled: Why did PayPal withdraw from the acquisition of Pinterest?

The giant deal canceled: Why did PayPal withdraw from the acquisition of Pinterest?
The giant deal canceled: Why did PayPal withdraw from the acquisition of Pinterest?

Paypal Holdings withdrew from a $ 40 billion takeover of Pinterest after shareholders of the online payments company rejected the idea.

PayPal announced Sunday night that it “does not seek to acquire Pinterest at this time.” The deal, about which discussions were leaked last week, would have combined the payments giant that has big financial ambitions with a photo-sharing site struggling to realize the benefits of its role in online commerce.

PayPal shares fell nearly 12% within three days after news of the deal was released, a sign that investors questioned the viability of the move. Shares rose again 2.7% on Monday. stock Pinterest Fell 13% after initially rising last week.

An agreement with Pinterest, which has a market value of more than $ 37 billion, would become one of the biggest mergers this year and the largest acquisition of PayPal ever.

The PayPal board and management decided on Sunday to withdraw from the deal, after seeing the decline in stock value, alongside other issues in the early-stage talks, people familiar with the issue said. With a lower share price, PayPal might have given a larger share of ownership of Pinterest to investors in a stock deal, something that would have frustrated PayPal’s shareholders even more.

Because a deal has not yet been closed, PayPal has been in an awkward position in which it cannot explain the rationale for the purchase to shareholders. The company saw Pinterest as a unique opportunity to connect with consumers earlier when they shop online, the people said.

PayPal is trying to turn a payment company into a gateway to digital commerce. The company is trying to expand beyond its roots as a check-out option and instead become a service that helps users find new items online that they may want to buy. Purchasing Pinterest – a platform that helps users exchange recipes and home decorating ideas – would connect PayPal with customers while they think about what to buy. But investors are not convinced that PayPal was able to make money from the 454 million monthly users of Pinterest, analysts say.

“The concern is that you have a group of people surfing the net looking for a couch for their new home. They may mark it on Pinterest, but it’s not a big deal. They may never buy it either,” said Darren Fleur, director at Wolfe Research.

Pinterest makes most of its revenue from selling advertisements to users, rather than connecting them to retailers and charging a brokerage fee for the money retailers receive from purchases.

Investors also fear that the acquisition of Pinterest could lead to the alienation of key PayPal partners, including online merchants and social networking platforms that use PayPal to process transactions, said Chris Donat, senior research analyst at Piper Sandler.

PayPal was once part of eBay. The payments company has grown rapidly since its divorce in 2015 from the online market, in part because of its partnership with payment processing companies including Visa and MasterCard, regional banks and merchants.

PayPal “needs the degree of freedom that is part of being independent,” Donat said.

PayPal wants to double the number of active monthly users to 750 million over five years, CEO Dan Schulman said in a presentation to investors earlier this year. To get there, the 23-year-old is working on a variety of tools designed to attract customers and make money, Possibility to pay bills in PayPal and trade cryptocurrencies through the service.

Another key component in the company’s growth goals is to bring users to PayPal earlier in the shopping experience. This could increase the volume of payments the company processes, and then PayPal will be able to charge a merchant fee for access to its growing customer base.

The quick way the deal was unveiled to acquire Pinterest is reminiscent of how Salesforce abandoned plans to buy Twitter in 2016. In both cases, these were deals offered by the technology aristocracy to acquire platforms that generate big buzz but little profit. Salesforce shares plummeted when talks about the purchase leaked, and CEO Mark Benioff was forced to abandon the idea.

PayPal’s record in acquisitions might have given investors some cause for skepticism. Venmo, the payments app that has millions of young users purchased by PayPal in 2013, has yet to make a profit for its parent company.

Ben Otto participated in the preparation of the article.

 
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