PayPal Holdings Inc has sent a clear message to Wall Street and potential acquirers: "We have everything under control." This statement comes from CEO Enrique Lores amid recent market rumors that payment company Stripe is considering a $53 billion acquisition of the struggling PayPal. Lores did not comment on the specifics of the acquisition, but his words suggested that Stripe's offer did not meet the company's expectations, and the board will continue to execute its existing business development plan.
Objectively speaking, Lores' remarks were comprehensive. He stated that the board is open to various acquisition offers and will compare all proposals against its own operational plans, ultimately choosing the option that maximizes value. He indicated that his management plan can generate substantial returns for shareholders, including accelerating the growth of the Venmo business, expanding payment service segments like Braintree, and increasing the frequency of use among high-net-worth clients. When pressed by reporters on why past reforms failed to reverse the decline and how this round of adjustments is expected to succeed, Lores reiterated his previous points, adding that he is optimizing execution and strengthening accountability.
In short, he promised to manage the company better than in the past, but this argument has limited persuasiveness. Multiple sources indicate that the acquisition offer from Stripe, in partnership with private equity firm Advent International, is significantly low. Additionally, the proposal may have other flaws, such as insufficient guaranteed financing. It is possible that the board is privately negotiating a higher price with Stripe and Advent, or quietly searching for other potential buyers. A common practice in corporate mergers and acquisitions is for the board to publicly solicit bids from the market to test the highest acquisition price, but PayPal has not done so.
The company can only ask shareholders to trust the board's judgment. This trust is a high bar. In recent years, PayPal's business performance has been consistently poor: growth has nearly stalled, competitors like Apple Pay have aggressively captured market share, and the company's stock price has fallen by approximately 80% since 2021. Lores, who previously served as CEO of HP, only took the helm at PayPal in March and has no prior experience in the payment industry. Another critical background factor is that the entire board of directors holds a very low percentage of company shares. Earlier this year, it was reported that the board collectively owned only 5.66 million shares, representing 0.6% of the company's total outstanding shares. It is worth pondering whether the board's attitude would be different if its members held more company stock and their interests were more closely aligned.
Meta Platforms Inc is frequently replicating this capital operation strategy. The company announced the formation of a joint venture for its data center in El Paso, Texas, with BlackRock holding an 80% stake and Meta holding 20%. Meta contributed land and the under-construction facility as equity, allowing it to recoup $1 billion in cash. BlackRock contributed $4.9 billion in cash, partially funded by a $12.5 billion debt financing package. This is the second time Meta has structured a similar deal for a capital-intensive data center. Last autumn, Meta entered into a highly similar partnership with Blue Owl for its Hyperion data center in Louisiana, recouping $3 billion.
These partnerships help Meta shed the massive capital expenditure burden of building data centers, but the long-term costs remain uncertain. Meta has signed a four-year lease agreement for the campus, with renewal options that could extend the total lease term to up to 20 years. Meta retains the right to terminate the lease, but if the data center assets depreciate in value, Meta must bear the responsibility to protect bond investors' interests. Despite these constraints, the deal is still largely favorable for Meta. The company previously disclosed that the total investment in the El Paso project is $10 billion, making it more expensive than the vast majority of data center projects on Meta's books. Only the data center in Lebanon, Indiana, is of a similar scale. It is highly likely that this project will also be operated through a similar joint venture model in the future.
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