PayPal: Is Being Bought Out What's Best for the Company Right Now?

On July 15, it was reported that privately held fintech company Stripe and private equity firm Advent International made a joint offer to acquire PayPal (NASDAQ: PYPL) for around $53 billion; the stock surged more than 17% on the news.

But would selling make sense for PayPal right now? From a company perspective, no. From a shareholder perspective, possibly -- just not right now.

PayPal is in the middle of a turnaround; in February it appointed a new CEO, Enrique Lores, who was serving in the same position at HP. Typically, if you switch up leadership and reorganize your company, it's because you think the move can turn things around, and you want to give it more than a few months to see how it plays out.

Stripe and Advent's $53 billion is a lowball offer

At $53 billion, their offer equates to $60.50 per share, 30% above PayPal's closing price on July 10. PayPal's stock has been struggling, yes, but it was just trading around that price in early December. That "premium" doesn't quite seem high enough, especially after PayPal's recent run-up; at market close on July 15, its share price was $55.52.

Share price aside, PayPal still generates respectable free cash flow (FCF). Last year, it had $6.4 billion in FCF, meaning the business would essentially pay off the acquisition cost in less than nine years, assuming it didn't grow. Between the cash flow and the $13.5 billion that PayPal had in cash, cash equivalents, and investments at the end of the first quarter, such a deal would be a steal for Stripe and Advent.

Image source: The Motley Fool.

Should shareholders want PayPal sold?

I think that if you're a PayPal investor who's grown impatient with the company's "turnaround" story, you'd be OK with it selling at the right price. Whether you're taking profits as a long-term investor or cutting losses short, it could just be a way to wash your hands of the company.

The good news is that the price for Stripe and Advent's offer is public, so if PayPal rejects it on price grounds rather than because it's not interested in selling at all, we could see higher buyout offers coming in. This initial proposal seems more like a "let's feel it out and see if they bite" type of offer.

On the other end, though, PayPal has been diligent about returning value to its shareholders through stock buybacks -- it returned $1.5 billion in the first quarter -- so investors have a greater incentive to be patient during PayPal's (ideal) transition period.

I don't think selling PayPal is in the best interests of either the company or its shareholders, but the latter might easily be convinced at the right price.

Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends HP and PayPal. The Motley Fool recommends the following options: short September 2026 $47.50 calls on PayPal. The Motley Fool has a disclosure policy.