Bernstein Ponders Potential PayPal M&A

In a note released Wednesday, Bernstein discussed the various permutations and combinations concerning M&A involving Paypal Holdings Inc PYPL. The firm noted that its early July upgrade of PayPal was based on a predicted strategic acquisition it will likely make in the coming months.

As such, the firm maintains its Overweight rating and $66 price target for the shares of PayPal.

Analyst Lisa Ellis listed the potential acquisition targets, categorizing them as top candidates and less-likely candidates.

Top Candidates

• Adyen: $5 billion, plus, price tag; Braintree of continental Europe.
• Klarna: $2.5 billion, plus, price tag; PayPal credit++ of Scandinavia.
• Square Inc SQ: $10 billion, plus, price tag; merchant of record capabilities and in-store SMB presence synergistic.
• Stripe: $9 billion, plus, price tag; Braintree competitor.

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Less Likely Candidates

• WIRECARD AG UNSPON ADR EACH REP 0.5 ORD WCAGY: $11 billion, plus, price tag; WORLDPAY GRP PLC UNSPON ADR EACH REPR 3 ORD WPYGY of Germany.
• Shopify Inc (US) SHOP: $11 billion, plus, price tag; SMB-centric e-commerce service provider.
• Sumup: mPos provider.
• Transferwise: Xoom competitor.
• Nets: $5 billion, plus, price tag; Vocalink of Nordics.
• Synchrony: credit partner.
• Vantiv Inc VNTV/Worldpay.
• Global Payments Inc GPN.
• First Data Corp FDC: processing partner.
• Discover: In-store partner.

PayPal Unlikely To Be Acquired

Meanwhile, Bernstein believes PayPal is unlikely to be acquired, given that few players can afford a $75 billion, plus, price tag. Additionally, the firm believes PayPal is likely more valuable independent than owned by those that could.

The firm sees dis-synergies or unclear deal rationale if PayPal was bought by Amazon.com, Inc. AMZN, Apple Inc. AAPL, Alphabet Inc GOOGL GOOG, Facebook Inc FB, Visa Inc V, Mastercard Inc MA, JPMorgan Chase & Co. JPM or Wells Fargo & Co WFC.

Although a merger with Alibaba Group Holding Ltd BABA-owned AliPay would make sense, the firm feels the merger would likely be stymied by regulators. The firm also ruled out American Express Company AXP interested in PayPal, as it would now conflict with Choice.

That said, Bernstein believes the strong performance will continue over the coming year, catalyzed by a likely strategic acquisition, the forthcoming credit partnership intended to shift the company's credit business off-balance sheet and earnings outperformance, driven by recent pricing actions and the rollout of Choice

Related Link: What Will Alibaba Do With MoneyGram? _________ Image Credit: By Sagar Savla - Own work, CC BY-SA 3.0, via Wikimedia Commons