ayPal continues to make the news. In our last issue, 02:07:01, we reported on several items involving the Internet payment provider. For instance, the state of New York Banking Department ruled that PayPal is not engaging in illegal banking practices, and there was talk of plans for a secondary public stock offering.

On July 8, 2002, eBay announced it will buy PayPal in a deal that, by most accounts, will total $1.5 billion in stock. eBay hopes the acquisition will speed up trading on its auction site and make the transactions easier and more secure for its customers. Speculations about the possibility of the acquisition have circulated since April, and some reports indicate negotiations have been ongoing for close to a year.

The deal is expected to be completed by the end of this year, pending approval of investors and regulators, but the two companies are already facing opposition to the merger.

Two lawsuits seeking to block the merger were filed in Delaware Chancery Court on behalf of PayPal shareholders the same week the purchase was announced. One of the suits alleges the conditions of the deal constitute a breach of both companies' fiduciary responsibilities to shareholders. The second suit says the price eBay is paying for PayPal is unfair and inadequate.

Both eBay and PayPal believe the lawsuits are without merit; in its initial regulatory filing, eBay said it will contest them.

Despite other concerns that have been raised regarding the merger's resulting monopoly, antitrust authorities most likely will approve the acquisition, according to some analysts. Other companies that process online payments, as well as payment methods like checks and money orders, will provide options as well as a level of competition.

While the acquisition will forge a partnership of complementary missions and will better integrate sales and payments for small enterprises, some industry analysts believe it could mean trouble for consumers who use the payment-service site. The newly created entity will dominate 80 percent of the online payments market, reducing competition and consumer options.

eBay and PayPal are two of the Internet's rare business success stories; eBay has been one of the most consistently profitable companies in e-commerce, a market expected to grow to be worth $145 billion by 2003. The two companies will be able to merge their billing systems and should be able to share insights and solutions on preventing fraud in online transactions. PayPal will continue to operate as a separate brand.

PayPal is by far the largest payment-transaction service for online purchases; 60 percent of its business is derived from eBay auction transactions. eBay's own service, Billpoint, has been a distant second-place choice for consumers in terms of use and trustworthiness. The Billpoint system will be phased out when the PayPal deal closes.

PayPal's quarterly report showed the company had 12.2 million personal accounts and 3.2 million business accounts as of March 31, 2002. PayPal went public in February 2002 and raised about $300 million at that time.

Because PayPal processes transactions for other merchants, eBay also will make money on transactions that take place on other sites. eBay will not allow PayPal to process any transactions for online gambling sites, which presently account for almost 10 percent of PayPal's revenue.