eBay Acquires Bill Me Later for $820 Million in Cash (Updated with Conference Call Notes and Headcount Reduction)

Online auction provider eBay has announced that they have acquired Bill Me Later for $820 million in cash plus approximately $125 million worth of outstanding options. The deal is expected to close by year-end.

eBay notes that today’s acquisition will be a good complement to PayPal. “Bill Me Later is a perfect complement to our portfolio; PayPal and Bill Me Later belong together,” said John Donahoe, eBay Inc.’s president and chief executive officer. “We now have a powerful combination of the two leading, complementary online payment products, each with proven benefits for consumers and online merchants. At an attractive valuation, our investment in Bill Me Later opens significant long-term growth opportunities."

Bill Me Later will run as a business unit of Paypal and Bill Me Later CEO Gary Marino will report to PayPal president Scott Thompson.

From the release: eBay anticipates that Bill Me Later will generate an estimated $150 million in revenue in 2009.

There is a conference call scheduled for 8:30AM and we will update this post with comments from the call.

Conference Call Notes:

John Donahoe says they want to focus this year on the following 3 things:

1. make ebay easier to use
2. improve product selection
3. improve paypal’s leadership both on and off ebay

We are reducing our workforce by 10% or by about 1,000 total workers. It will impact most parts of the company. We are creating efficiency while investing where needed.

John discusses the acquisitions of DBA from Denmark. He notes they own 25% of Craigslist. If you add up all of the sites that are in the eBay network, they have more traffic than Craigslist.

PayPal has a strong and growing penetration on eBay. Growth on eBay has led to growth off of eBay – one million merchants off eBay use PayPal. They focus on large merchants – 35 of the top 100 online merchants offer PayPal. 63 million consumers use Paypal. This quarter Paypal volume off ebay will be larger than on ebay.

BML (bill me later) and paypal belong together. we know the company and their unique capabilities – now is the right time to combine both companies. Bill me later is the number 2 online payments company. Bill Me Later brings 3 strengths to paypal:

1. a complementary merchant base to paypal
2. bml delivers a compelling consumer value proposal
3. bml helps paypal leverage its distinct business advantage – lower costs

We now have the #1 and #2 online payment brands. They believe that even with the market conditions, they believe this is the right time to bring the companies together.

Gary Marino, Bill Me Later CEO now speaking:

The more we spoke with paypal, the more we saw similar goals. He explains how bml works. They have a lot of risk models and can figure out if the sale should proceed in under 3 seconds. The appeal of BML is how easy to use – consumers like it apparently when they are in a rush.

BML typically sees double shopping cart size when using the BML checkout option.

They have re-engineered the credit model – they do not issue credit lines- they authorize sales one at a time.

Scott Thompson – Paypal President now speaking:

Bill Me Later is a lot like Paypal and that’s why it makes sense to come together. Discusses how BML has mostly larger merchants while PP has mostly ebay shoppers. Shoppers have more choice online now.

BML will help lower the overall transaction costs for Paypal. Paypal is available on 25% of all transactions on the internet.

Clearly their goal is to grab as much of the larger volume and transaction sites based on this call.

The acquisitions total 1.3 billion.

Stronger dollar has been a challenge for the company – more details on their earnings call next week.

Q&A:

• Bill Me Later will become part of PayPal. Gary is incented to stay. BML team is excited about the deal
• Expects BML to be on eBay by early 2009
• Paypal has 150 million accounts, 64 million are active
• valuation for bml less than half what it would have been a year ago
• biggest line item of cost for Paypal is transaction expense
• in 2009, bml and pp will interlink accounts with goal to have one signup process
• Skypte is 6% of total business

call has concluded.