Ebay Inc.'s (Nasdaq: EBAY) plans to spin off its PayPal unit has left many on Wall Street salivating over the potential of the stand-alone payments business.
And some pundits are speculating that Google Inc. (Nasdaq: GOOG) or Alibaba Group Holding Ltd. (NYSE: BABA) might buy PayPal.
But they should be asking this question: Will Alibaba buy eBay?
"There wasn't really a natural buyer for eBay up until about a week ago," Gil Luria, an analyst at Wedbush Securities, told Bloomberg. "Now there's a heavily capitalized, cash rich, fast-growing company with ambitions of getting into the West that could easily, easily buy it."
The spin-off plan announced today (Tuesday) calls for PayPal to become a separate publicly traded company next year. PayPal will be led by Dan Schulman, the former head of American Express Co.'s (NYSE: AXP) online and mobile payments business. The new eBay CEO will be Devin Wenig, the current president of eBay marketplaces.
Investors approved, sending EBAY stock up about 7.54% on the day to $56.63.
To be sure, the benefits for PayPal are clear. Independence will help PayPal to focus on battling Apple Inc.'s (Nasdaq: AAPL) forthcoming Apple Pay service for a mobile payments market that Citi Investment Research expects to grow from $1 billion last year to $58.4 billion by 2017.
Without the conflict of interest inherent in being owned by eBay, PayPal will have more freedom in seeking payments partnerships with other online retailers, including Amazon.com (Nasdaq: AMZN) and Alibaba.
But eBay? That's a different story.
In an interview with CNBC this morning, even CEO John Donahoe seemed unsure of the benefits of the split for eBay: "Well, perhaps one of the most important new opportunities it gives eBay is control over its own destiny."
In fact, divesting PayPal will leave eBay much more exposed as an e-commerce company squeezed between two giants - Amazon and an ambitious Alibaba.
Sooner or later, eBay will need to be acquired by a larger partner in order to survive, and Alibaba happens to be the ideal partner.
An eBay acquisition makes even more sense from Alibaba's perspective.
Let's just start with the cost...
If the choice was just between PayPal and eBay, Alibaba is clearly better off with eBay. For one thing, Alibaba can better afford eBay.
After the split, it's estimated that eBay's value will drop from about $70 billion to about $23 billion (PayPal will end up with about $47 billion).
And while the monster Alibaba IPO netted $21.8 billion, it only added about $8 billion to the company's existing cash pile of about $9 billion.
Now, Alibaba's borrowing capabilities can stretch its war chest to about $50 billion - that's only barely enough to swallow PayPal, but more than enough to buy eBay.
And we know that Alibaba likes to buy companies; it spent $5 billion on acquiring either full or partial stakes in numerous companies in the year leading up to the Sept. 19 IPO.
Then there's the fit. Alibaba has big plans for its own Alipay - it hopes to spin it off in its own IPO a couple of years down the road - but now is too soon for something as big as a PayPal acquisition.
Meanwhile, eBay gives Alibaba something it very much wants now in the wake of its U.S. IPO - a ready-made beachhead into the North American e-commerce market.
"The world is not just China," Joe Tsai, Alibaba's executive vice chairman, said in an interview in February. "We do think of ourselves as eventually becoming a more global company."
If Alibaba is to have any chance at competing successfully in the United States and other Western markets, however, it needs to convince consumers that it's a bona fide multinational corporation and not just a Chinese company.
Alibaba already has stuck a toe in American water with the launch of U.S. e-commerce website 11main.com in June. The site does not sell products directly, but acts as a virtual mall for boutiques and small-store owners to sell their wares.
But 11 Main is small potatoes next to eBay. An eBay deal would provide Alibaba with a substantial revenue stream, while giving it an established and trusted brand that will go a long way toward helping the company start realizing its global ambitions.
Finally, buying eBay also eliminates one more competitor, eventually setting up a head-to-head matchup with Amazon in a worldwide fight for e-commerce dominance.
"It's always been a part of Chinese culture for thousands of years to be long-term planners," Bryan Stolle, a general partner at Mohr Davidow Ventures, told CNBC. "They aren't confused at all about what they are doing and how they are going to be doing it. They have a plan and they are working out their plan."
Follow me on Twitter @DavidGZeiler.
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