PayPal PYPL.O was born out of a deal with Elon Musk's original X.com. It would make sense for them to merge again.
The payments processor, formed about a quarter century ago when Musk combined his fledgling financial technology venture with a peer started by entrepreneurs Peter Thiel and Max Levchin, is on the market. PayPal boss Enrique Lores said this week that the company is open to offers after it rejected a $53 billion entreaty from rival Stripe. For a variety of reasons, SpaceX would be a better fit.
Musk has made no secret of his desire to turn the social media app X into a one-stop shop for messaging, digital wallets and more, like China's WeChat. It was a big reason he paid $44 billion for Twitter in 2022, and then rebranded it with the same X he had used for his trailblazing online bank. He recently unveiled X Money, but building a payments network from scratch is costly and slow. PayPal, which owns the peer-to-peer network Venmo and handled $500 billion of volume in the second quarter alone, would turbocharge the super-app dream.
With a $1.5 trillion valuation following a blockbuster initial public offering last month, X parent company SpaceX SPCX.O now has a powerful acquisition currency. If Musk used it to offer a 50% premium to PayPal's undisturbed stock price, 15% more than Stripe's bid, it would dilute the rocket maker's shareholders by about 4% in exchange for a promising return.
Paying $70 a share would value the PayPal enterprise, including net debt, at nearly $62 billion. The company is expected to generate about $5.5 billion of after-tax operating profit in 2027, based on estimates compiled by Visible Alpha, which implies a return on investment of almost 9%, on par with PayPal's weighted average cost of capital, according to Morningstar analysts. Moreover, the return, as calculated by Breakingviews, doesn't factor in any synergies. Given the extensive cost cutting Musk did after buying Twitter, the PayPal savings would probably be hefty.
Although PayPal might seem insignificant to the broader SpaceX ambitions of celestial data centers and colonizing Mars, it would help fulfill one of the founder's earthly aspirations while acquiring some profit and, theoretically at least, creating shareholder value in the process.
Don't discount the personal worth to Musk either. Following the X deal in 2000, PayPal's board ousted him as CEO and installed Thiel instead. Musk already briefly claimed the world's first trillionaire mantle and completely controls SpaceX, but it's hard to put a price on poetic justice.
Context news on PayPal's strategic review
PayPal CEO Enrique Lores said on July 28 said that the company's board and management is "open" to a deal, but that he believes it can produce value on its own.
The payments processor on July 20 rejected a $53 billion joint takeover bid, at $60.50 per-share, from rival Stripe and private equity firm Advent. At the time, the board said it has hired Goldman Sachs and Evercore to evaluate its strategic options.
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