EBay, PayPal to split into two separately traded companies

Under new business plans, EBay is going to spin off PayPal in 2015 -- a victory of sorts for investor Carl Icahn.

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EBay plans to spin of its PayPal mobile payments unit into a separate publicly traded company.

The online auction site revealed the move in an announcement Tuesday, as reported by the New York Times. The business split, which places both eBay and PayPal on the path activist investor Carl Icahn has been fighting for, will see both reformed as separate publicly traded companies in the second half of 2015.

Under the terms of the split, eBay CEO John Donahoe will step down as chief executive and join one or both of the boards of the two new companies. Devin Wenig, currently acting as president of the eBay Marketplaces unit, will step up as chief executive.

Newly hired group president of enterprise growth at American Express Dan Schulman will become CEO of PayPal.

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Naturally, the business unit split will affect shareholders. Current eBay investors will receive one share of each company for each share they currently hold in eBay, which is valued at approximately $65 billion.

The shift in business model is a victory for Icahn, who began putting pressure on eBay's board to split the company and unit last year. Icahn wanted a better deal for shareholders, and believed a PayPal-eBay split would generate the most potential revenue and value. PayPal would be able to grow on its own merits rather than being tied as the auction site's payment system and a lesser unit, whereas eBay's management team would also be able to better focus on growth.

However, Donahoe continually refused the hedge fund investor's demands. In an analyst call in January, the executive said that "the best way to drive long-term shareholder value is to keep eBay and PayPal together, to capitalize on the opportunities."

Times have changed, and so has the mobile payment space -- as well as eBay's stance on a split. In an interview with the New York Times, Donahoe acknowledged the shift in strategy and Icahn's previous recommendations, saying that the eBay team "got to the same place that Carl said early on." However, the CEO emphasised that arriving at the conclusion to split eBay and PayPal was the result of a "deliberate process" rather than a reaction to outside pressure.

EBay acquired PayPal in 2002 and the unit quickly became the de-facto online payment system alongside banks. However, many tech companies are now seeing the potential profit in mobile payment systems and are competing against PayPal for a slice of the market.

Read on: In the enterprise

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