Xoom deal reunites with PayPal roots

Xoom Inc.’s deal to be acquired by PayPal for $890 million will also reunite the international money-transfer company with some of its roots.

Xoom’s early investors and co-founders included some members of the so-called “PayPal Mafia,” early investors and founders of PayPal who went on to invest in other tech companies in Silicon Valley.

Kevin Hartz, one of the co-founders of Xoom, was also an early investor in PayPal, according to his bio on LinkedIn. In addition, another Xoom early investor and director was entrepreneur Keith Rabois, now with Khosla Ventures, who was also as a senior executive at PayPal. A couple of other senior Xoom executives have also had career stints at PayPal.

With the deal, PayPal acquires a low-cost international money-transfer service that competes with Western Union WU, +0.30% as it prepares to separate from its parent eBay Inc. EBAY, +0.31% later this month.

PayPal, on its roadshow to investors to discuss its looming spin-out, had discussed the ways it wanted to expand its business. On top of its list was the money-transfer business, said James Friedman, an analyst with Susquehanna Financial Group, in a note on Monday.

PayPal is paying a premium of about 21%, at $25 a share for the company, which closed at $20.70 a share. But some shareholders-rights lawyers did not think PayPal was paying enough, with two law firms, Johnson & Weaver, LLP and Bronstein, Gewirtz & Grossman, LLC, announcing plans to investigate the deal, citing “concerns whether the board of directors of Xoom breached their fiduciary duties to stockholders by failing to adequately shop the company.”