Xoom Corp (NASDAQ:XOOM) announced on Wednesday that it had agreed to a $890 million bid from eBay Inc (NASDAQ:EBAY). That may not be the end of the story, however, says SunTrust Robinson Humphrey analyst Andrew Jeffrey. He thinks there could be a bidding war in the making for Xoom, and he thinks Facebook Inc (NASDAQ:FB) and The Western Union Company (NYSE:WU) could line up against Paypal.
Xoom is begin bought not by eBay directly, but by the firm’s PayPal unit. That unit is due to be broken off and set on its own public course this year, though the date of the split has not yet been set. The deal, which will bring 1.3 million Xoom users to PayPal, has to be confirmed by Xoom’s shareholders first, leaving room for a higher bid.
Xoom waits for a better offer
Those with shares in Xoom will be happy on today’s news. Shares opened up more than 20% on this morning’s market and hit highs not seen since the middle of last year. A better offer could always come along, of course, and Mr. Jeffrey of SunTrust thinks that the eBay offer may be the start of a bidding war for Xoom.
Andrew Jeffrey says that there are other suitors for the firm that “could make sense” and pointed to the high trading price on the intra-day market as proof of market belief that there could be a bidding war for Xoom. Shares in the firm were selling for $25.32 at time of writing, up 22.32 percent from yesterday’s close.
The eBay/Paypal offer to buy Xoom came in at $25 per share, and the premium means that those with shares might be looking for a higher number before selling out. Mr. Jeffrey has a few ideas about the other firm that could make an offer for Xoom.
He says that Facebook and Western Union are among the options, as are firms like Google, SnapChat and a host of private equity firms. Airbnb is the “wild card” says Jeffrey, but there are many firms out there with a use for a payment processor like Xoom and the cash to splash out on it.
Paypal gets ready to Xoom
Mr. Jeffrey’s colleague Bob Peck took a closer look at the deal between Paypal and Xoom and saw a lot of good in the move for the firm. He said that taking in Xoom “could serve to sustain relevance on the consumer side” while also “preserve/lower funding cost and strengthen the value proposition on the merchant side.”
Paypal is about to become its own firm and be forced to stand on its own feet. Once it’s free and clear of eBay, the firm will have to be valued on its own and show that it’s able to compete with upstarts like Apple and Google in the payment market.
If the firm doesn’t have the resources to outbid its rivals for Xoom, there could be a long road ahead for those who end up with shares in the firm. Buying Xoom appears to have been a strong first move for Paypal, at least according to Mr. Peck, but losing out on a bid before going public could lead to questions of execution risk at the firm.