Clearly, the markets have spoken, and it looks like PayPal's management has listened.
After its stock took a hit last week (while shares of Pinterest soared) following an out-of-left-field that the payments company planned to acquire social media firm Pinterest, PayPal shares are surging as much as 6% in premarket trading after management announced that it isn't pursuing a deal with Pinterest.
PayPal has been on an acquisition spree in recent years, potentially motivated by the fact that competition in the payments space is growing ever more fierce, especially now that Facebook is preparing to launch a free-to-use stablecoin allowing people to transfer money around the globe, purportedly for free (or next to nothing) once it's fully rolled out.
But investors clearly didn't like what they heard from Bloomberg last Wednesday when it published the first reports of the deal (which one CNBC reporter speculated may have been a trial balloon to test the market's appetite for a deal). In response, PayPal shares slumped last week while Pinterest shares soared. If consummated, the deal would have been worth $45 billion at PayPal's reported offer price.
PayPal stated that it "is not pursuing an acquisition of Pinterest at this time,” in a one-sentence statement released Monday.
Last week, there was also speculation that PayPal might trigger a bidding war for Pinterest, potentially with a rival like Shopify, or potentially a giant like Microsoft (which already owns one social media network). Analysts at Arete Research said PayPal's reported offer of $70/share would have "undervalued" Pinterest. Last week, analysts at Arete speculated that PayPal could use the acquisition of Pinterest to lock in customers and push wider adoption of its services, given its struggles with “buy now, pay later” peers like Klarna, Affirm and Square as well as Shop Pay.
Meanwhile, others said the deal "perplexed" them, and that it seemingly had "no rationale".
“We are perplexed by this potential transaction, and see little or no strategic rationale,” Andrew Jeffrey, an analyst with Truist Securities said. “We see such a move as an act of near desperation.”
The idea was that Pinterest could give PayPal insight into what consumers are buying, giving it the ability to advertise or offer discounts based on the data. Last year, PayPal bought couponing and price-comp app company Honey Science.
While it lacks the high-profile recognition of social media rivals like Facebook, Pinterest has seen steady and promising growth in monthly active users.
Given the size of the moves, savvy merger arb traders could have made a killing (or lost a fortune) on this one.
While PayPal is backing out, of course, it's still possible another suitor might emerge since many believe the initial report was little more than a trial balloon.