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EBay said Monday that it has agreed to buy online payment provider PayPal in a stock swap valued at $1.5 billion.

The auction powerhouse hopes that the deal will make buying and selling merchandise online even more convenient for its 46 million worldwide users by providing them with an integrated payment system.

The acquisition, which is expected to close by the end of this year, is subject to approval by stockholders and regulatory agencies. EBay has agreed to acquire all outstanding shares of PayPal in a tax-free, stock-for-stock transaction, the company says. The $1.5 billion estimated purchase price is based on the value of PayPal's stock on July 5, 2002. The actual purchase price may vary depending on when the transaction closes and fluctuating share values.

Working Together

Nearly 60 percent of PayPal's business already takes place on eBay, while the remaining 40 percent is handled by small merchants eBay hopes to woo to its site, the companies say. PayPal is also looking to widen its scope by accessing eBay's broad user base, the companies add.

Under the terms of the proposed deal, PayPal would continue to operate as an independent brand, but would phase out its gaming business due to the uncertain regulatory environment surrounding gaming, the companies say.

For its part, eBay plans to discontinue its current payment service, eBay Payments by Billpoint, at the close of the transaction, the company says.

EBay, based in San Jose, California, says that it expects to incur incremental charges for stock-based compensation and amortization of intangible assets of $4 million and $9 million per quarter if the deal goes through.

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