The smouldering embers of the dotcom boom flickered into life yesterday when online auction group Ebay agreed to buy internet payments firm PayPal for $1.5bn (£1bn).
The all-share deal is one of the few internet sector takeovers in recent months to have been driven not by a desperate desire to survive but because both companies believe that together they could increase revenues.
In an accompanying trading statement, Ebay also underlined its position as one of a small minority of internet firms consistently to turn a profit by raising its earning guidance.
Silicon Valley's PayPal operates a payment system used by many of Ebay's customers. It has a membership base of 16m people and facilitates 295,000 secure online payments each day.
Ebay said that following completion of the deal it will phase out its own payment system, run in conjunction with Billpoint.
PayPal was co-founded by twenty-something technology guru Max Levchin, who wanted to create a secure online alternative to credit cards.
He and co-founder Peter Thiel received backing from venture capital firm Sequoia. Michael Moritz, the Welsh-born and Oxford-educated Sequoia partner who funded PayPal, was also the initial backer of Yahoo! The Ebay takeover comes just five months after PayPal floated on the stock market for about $900m.
"Ebay and PayPal have complementary missions," said Ebay chief executive Meg Whitman. "Together we can improve the user experience and make online trading more compelling."
Online payment is seen as a business that could help Ebay meet its stated goal of generating $3bn in annual revenue by 2005. PayPal generates 60% of its revenue from transactions on Ebay and will now look to sweep up the rest of the auction site's deals.
The firm went public in February at $13 and traded as high as $30, before yesterday jumping 11% to $22 as the deal was announced.
PayPal expects net revenues during the second quarter of about $54m. Ebay lifted its guidance on its own second- quarter revenues from $260m to $266m, putting it in line for its 16th consecutive quarter of profit.
