EBay, the on-line auction site, announced yesterday that it will acquire internet payment provider PayPal. EBay agreed to pay $1.4 billion for the company, which is the most popular means of payment for the millions of users of eBay’s auction web site.

US-based eBay said it will acquire all PayPal shares in a tax-free, stock-for-stock transaction using a fixed exchanged ratio of 0.39 eBay shares for each PayPal share. This is translated to an offer of $21.93 for each of the 64 million PayPal shares outstanding.

However, the final purchase price may vary significantly from the estimates, and will depend on a number of factors, including the length of time necessary to close the transaction, and the value of eBay stock at closing.

The acquisition is subject to various stockholder, government and regulatory approvals and is expected to close at the end of 2002. EBay CEO Meg Whitman, said: “eBay and PayPal have complementary missions. We both empower people to buy and sell on-line. Together we can improve the user experience and make on-line trading more compelling.”

PayPal which will continue to operate as an independent brand, conducts approximately 60% of its business activities on the eBay web site. It will also continue to provide its Web Accept product, which enables independent on-line merchants to accept payment directly at their web sites.

However eBay plans to stop PayPal’s services for gaming operators, in view of the “uncertain regulatory environment.”

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