Exclusive-PayPal board sees Stripe-Advent offer as inadequate, sources say

By Milana Vinn and Manya Saini

July 16 (Reuters) - PayPal’s board sees a $53 billion takeover bid by rival Stripe and private equity firm Advent International as undervaluing the company and facing regulatory and financing hurdles, a person familiar with the matter said, potentially setting the stage for negotiations over the future of the U.S. payments giant.

PayPal has not formally responded to the proposal, two other sources said.

Stripe declined to comment.

The consortium's bid comes as PayPal, founded in the late 1990s, has struggled in recent years to compete against rivals like Apple Pay and Google Pay, with management trying to revive its flagging share price in the face of slowing growth. Combining Stripe and PayPal, the most widely used payment platforms for internet merchants, would create one of the world's largest global online payments companies, processing some $3.7 trillion of annual volume.

PayPal's board is evaluating the bid – and the possibility that other offers could emerge – against  management’s turnaround strategy, the person said. Its early view is that while the $60.50 per share offer represents a premium to the company’s recent share price, it does not fully reflect the potential value the company could create over the coming years if management successfully executes its strategy, the source said. PayPal rose 2% on Thursday to $56.73.

The board is also weighing factors beyond price, including the certainty of financing, potential regulatory hurdles and what could be a lengthy timeline to complete any transaction, the source added. It is scheduled to hold additional meetings, the source said. The details of the board’s view are reported here for the first time.

The consortium, meanwhile, is trying to address some of these issues. JPMorgan and Morgan Stanley have provided the bidders a roughly $50 billion financing package, two other people familiar with the bid said. The two banks also serve as advisers to the consortium, they added.

Stripe and Advent are contributing $17 billion in equity for the offer, one of the people said. 

PayPal, Advent, JPMorgan, Morgan Stanley, and Stripe declined to comment. 

Under the offer, which was submitted earlier this month,  Stripe and Advent would jointly own PayPal, with each holding an equal stake rather than breaking up the company, Reuters previously reported. But they have also considered possible remedies should it run afoul of antitrust regulators, one of the sources said.

That potentially involves separating PayPal’s Braintree business or other assets and transferring them to Advent, which could then combine those assets with its payments investments, including Nuvei, the person said.

Despite PayPal's reservations over the current proposal, the sources said the consortium has emerged as the most serious bidder for PayPal and it remains interested in reaching an agreement. While they are seeking to move quickly, negotiations are likely to take time, the sources said.

Block, Stripe and Advent first approached PayPal together in April, but Block exited the consortium before Stripe and Advent submitted their latest offer.

Block did not immediately respond to a request for comment. 

Investors will be watching PayPal's July 28 earnings report for signs that growth in its core checkout business is stabilizing after the company earlier this year issued a weaker-than-expected outlook and warned of slowing momentum in the segment.

Privately held Stripe enlisted Advent as an equity partner because funding the entire equity portion of a deal on its own would be difficult, according to the person familiar with the bid. Advent’s involvement could also give the consortium additional flexibility in addressing potential regulatory concerns, the person added. Advent has been an active investor in the payments sector, with a track record of acquiring and investing in companies across the industry, including Worldpay, Vantiv and, more recently, Nuvei.

The size of the transaction makes it difficult for many financial buyers to pursue, even as assets such as Venmo have drawn interest, while regulatory considerations could complicate interest from some strategic acquirers.

(Reporting by Milana Vinn in New York and Manya Saini in Bengaluru; editing by Echo Wang, Colin Barr and Stephen Coates)