Arb Arb
Read the rules
Stripe teamed up with private equity firm Advent to bid ~$53 billion for PayPal (PYPL). The target has struggled with competition including from Apple (AAPL) Pay. For Stripe, the key part of PayPal’s value is getting Venmo. The bidders are offering a decent premium, but well beneath PYPL’s lows and beneath where management would get most of their incentive pay.
A deal will have to get past the target’s board as well as regulators. Both present timing risk and deal risk. PayPal’s CEO will probably recommend against accepting the bid to his board and that recommendation will probably get listened to. What would be acceptable? They would have to bump their $60.50 per share bid to over $70 and perhaps closer to $80. Exceeding the share price’s high of the past year is arbitrary yet one of the arbitrary reference points that could be necessary to sway the target’s board in favor of selling. They will be hard to convince any lower.
PayPal was a bargain under $40 but much of this news is priced in at over $55. It is a good value but volatile event that could easily fail in the short-term. An alternative to the equity market: the prediction markets. Will Stripe acquire PayPal in 2026? Polymarket placed the odds over 80% this week and is currently ~44%. PayPal acquired this year? Kalshi offers this at 63%.
The key difference is in the rules. Kalshi resolves to yes if any company announces an agreement to acquire PayPal before Jan 1, 2027. So it pays out day one in a deal with decent odds of getting announced in 2026. But Polymarket is only a yes with this specific buyer. Counter bidders could include Amazon (AMZN), Apple (AAPL), Google (GOOG) (GOOGL), Visa (V), Mastercard (MA), or Block (XYZ). This week offered a freeroll (and still a cheap roll) on any of those outcomes. It has been an arbitrage on the merger arb market — an arb arb!