PayPal, eBay’s (NASDAQ:EBAY), said it would buy digital money transfer provider Xoom (NASDAQ:XOOM), a service for sending international money transfers, for $890 million.
The offer price of $25 per share in cash represents a premium of about 21 percent to Xoom's closing price of $20.70 yesterday, the San Jose, California-based company said in a statement.
The purchase is expected to slightly reduce PayPal’s earnings per share for fiscal 2016, the company said.
PayPal said it is planning to keep all of Xoom’s roughly 300 employees, as well as its chief executive, John Kunze.
PayPal faces increasing competition from rivals like Stripe and Square, which is popular with smaller businesses, and Apple Inc's Apple Pay. Online commerce foe Amazon.com Inc is also beginning to explore in-store payments.
The proposed purchase of Xoom comes months after PayPal’s $280 million acquisition of Paydiant, a mobile payment startup. That deal was finalized in early April.
Xoom, based in San Francisco, enables U.S. customers to send as much as $3,000 in a single transaction to friends and family around the world using their mobile phones, tablets or computers. Its 1.3 million users transferred $7 billion to 37 countries, including Mexico, China and India, in the 12 months ended March 31, the company said.
The acquisition would allow Xoom to expand into new markets with less execution risk, Xoom chief executive officer John Kunze said in a statement late yesterday.
Xoom will operate as a separate service within PayPal after the completion of the deal.
Founded in 2001, Xoom pulled in $159 million in sales last year, a 30% jump from 2013. But it swung to a loss of $26.3 million in 2014, weighed down by a big charge in the fourth quarter tied to a suspected criminal fraud targeting the company’s finance department.
The purchase is expected to close in the fourth quarter.
Shares of XOOM surged 22.3 percent to $25.31 at 9:57 a.m. in New York