Corporate Cynicism, PayPal Style

It’s a sign of the times. In the afterglow of eBay’s PayPal acquisition announcement, although the deal has few detractors, questions are being raised.

They’re somewhat tough questions, focusing on who, why and, perhaps most importantly, when. In the world after Enron, HomeStore, Tyco, Xerox and WorldCom, cynicism is to be expected. But eBay’s purchase of PayPal also feeds right into the hysteria.

Timing Is Everything

PayPal and eBay say they began talking buyout six months ago or more. It makes sense to believe that no deal could be struck at that time because PayPal had different ideas about its own value. And PayPal certainly had a perfect place to turn to prove to eBay and the world what it was worth: Wall Street.

Underwriters and investors fulfilled PayPal’s wishes, blessing it with a successful IPO and immediate cachet. In this economy, the company was a rare bird, particularly one with Internet feathers.

The decision to go it alone and then do so well seemed to be PayPal’s chance to thumb its nose at eBay; to say, in essence, we don’t need you as much as you need us.

Don’t Call Us

But the takeover talk didn’t stop completely after the IPO. And when PayPal insiders announced they planned to sell another 3 million shares of stock, the iron was hot, and eBay struck.

News of the planned offering drove down PayPal’s stock price enough for eBay to step in and seal the deal.

Why is this timing bad? It’s not. At least, it wouldn’t be bad in ordinary times. But these times are not ordinary. Investors are suspicious, if not downright paranoid, and many people believe that nothing is what it seems.

PayPal’s IPO, of course, did more than just place a public value on the company. It made millions for underwriters, investment bankers and PayPal insiders, who sold stock they were granted — or bought for a pittance — to investors who wanted to hitch a ride on what seemed to be the PayPal express.

Close to the Mud

Only it wasn’t an express. It was a local. Next stop, eBay. Now, no one should complain. Even a fraction of a share of eBay stock is a valuable commodity. And, to be sure, eBay is not going to get tangled in anything as untoward as a shady takeover deal. EBay is too good and too strong a company, its reputation too important and its leadership too trustworthy.

But it’s not enough to be clean and above-board these days. It is necessary to avoid muddy puddles altogether, lest someone splash you as you stroll past.

Wading into the legally boiling waters of Wall Street — where analysts and underwriters could wallpaper their offices with the lawsuits filed against them in recent months — means coming dangerously close to the mud.

Applause Amid Roars

See, even though PayPal supposedly went public at US$13 per share, the average investors first chance to buy the stock probably came much closer to $20.

While the eBay purchase price still represents a $6-per-share premium — not bad for investors who held PayPal stock for just a few months — that profit pales in comparison to what insiders will make, and to the millions that bankers pocketed along the way.

The idea behind the IPO — indeed, behind all IPOs — was to raise capital to grow a company. It turns out, though, that PayPal’s growth is now eBay’s problem, and a good one to have at that.

In better times, the deal would have been greeted with roaring applause. Now, it’s getting some deserved applause, all right. But also a fair amount of roaring.

What do you think? Let’s talk about it.