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10/10/2005
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EBay To Buy VeriSign Online Payment Service

EBay will pay $370 million for an acquisition that will expand EBay's PayPal payment-processing service. VeriSign will also become eBay's preferred security vendor.

EBay Inc. on Monday said it has agreed to buy VeriSign Inc.'s online payment service for $370 million in cash and/or stock, a move that would significantly expand EBay's PayPal service while taking VeriSign out of the payment-processing business.

Under the agreement, VeriSign, based in Mountain View, Calif., becomes the "preferred security vendor" for the San Jose, Calif.-based online auctioneer, a VeriSign spokesman said. Along with the payment service, EBay has committed to buying next year from VeriSign up to a million security tokens, which are security devices that often attach to a keychain and display a changing number that is typed in as a password to log into a network.

"This is just the kick off of a larger relationship between our two companies," Brendan P. Lewis, spokesman for VeriSign, said.

EBay has agreed to pay $370 million in cash and/or stock for VeriSign's payment gateway business, which processed more than $40 billion in transactions last year, according to VeriSign. The deal is expected to close in the fourth quarter, pending regulatory approval.

The agreement effectively lets VeriSign consolidate its resources around transaction security.

"We're getting out of the payment processing space, but we're still going to enable and protect the transactions that go through the gateway," Lewis said.

VeriSign's payment service processed credit-card transactions for online merchants. Once taken over by EBay, the PayPal payment service would be added as another option. Most of PayPal's business comes from EBay auctions, but the parent company has been trying to expand its use to other Web sites

Companies make money through electronic-payment services by taking a commission on each transaction. PayPal accounted for $243.9 million of EBay's $1.1 billion in revenues in the second quarter. The VeriSign business is expected to generate an incremental $100 million of revenue in 2006 at a 20 percent pro forma operating margin.

In the short term, VeriSign customers won't notice any difference in the service, Sara Bettencourt, a PayPal spokeswoman said.

"In the near term, VeriSign and PayPal customers won't see any impact," Bettencourt said. "Over the long term, we will integrate PayPal as a payment (option) in the VeriSign gateway."

In agreeing to buy VeriSign tokens, EBay has committed to at least offering its buyers and sellers two-factor authentication for signing on to its network. The term applies to the use of two mechanisms, such as a smart card or token and a password, for logging in.

PayPal, which is a division of EBay, declined to discuss the security plans in detail, but Bettencourt said the Verisign tokens would be offered as an option to PayPal and EBay customers.

"There's no plans to make this mandatory for all our users," Bettencourt said.

PayPal, a division of EBay, had 79 million accounts in the second quarter. The parent company had 157.3 million registered users.

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