eBay's PayPal unit will pay approximately $370 million in cash and/or eBay stock for the VeriSign unit, in a deal that is expected to close by the end of the year. VeriSign's payment gateway business, to be merged with PayPal's merchant services platform, is expected to provide the combined unit with an incremental $100 million of revenue at a 20 percent pro forma operating margin in 2006, the companies said.

The move is likely to bolster PayPal's drive to attract more e-commerce merchants to its payment processing services. In June, the company introduced Web Site Payments Pro, which features express checkout purchases, offers an application programming interface (API) for implementing PayPal services, and support for phone, fax and mail orders. According to VeriSign, its payment gateway processed over $40 billion in payments in 2004.

VeriSign's payment gateway is an Internet-based real-time platform for online payment authorization and management. PayPal offers its own payment services, which have been particularly popular with eBay users. eBay acquired PayPal for $1.5 billion in 2002.

In addition to PayPal's acquisition of VeriSign's gateway business, eBay has also agreed to a multi-year security technology agreement that will see eBay investing in VeriSign's payment security solutions. Among those solutions is two-factor authentication, which eBay and PayPal are expected to roll out to customers in 2006.

"VeriSign's payment gateway is a popular and market-proven product that perfectly complements PayPal's existing payment services," said Jeff Jordan, president of PayPal, in a statement. "We're very excited about the opportunity to extend the benefits of PayPal's services to the VeriSign customer base. This acquisition allows PayPal to give our customers more choice in payment services and grow our merchant services business even more quickly."

This article was adapted from InternetNews.com. Devin Comiskey contributed to this report.