The move is a 180-degree reversal from six months ago, when eBay rebuffed the demands of investor Carl Icahn, insisting the company would be stronger with PayPal in the fold. Icahn is now eBay’s sixth-largest shareholder.
EBay now says a split will benefit both companies, with PayPal facing competition in online payments from Apple’s new mobile wallet service.
“For more than a decade eBay and PayPal have mutually benefited from being part of one company, creating substantial shareholder value,” eBay CEO John Donahoe said in a news release. “However, a thorough strategic review with our board shows that keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively.”
“The industry landscape is changing, and each business faces different competitive opportunities and challenges,” he added.
Donahoe and eBay CFO Bob Swan will oversee the separation of the business but will not have an executive role at either company. Devin Wenig, the current president of eBay Marketplaces, will be the CEO of the new eBay, while American Express executive Dan Schulman will lead the new PayPal.
According to eBay, the board concluded that a PayPal spinoff would create a sharper strategic focus. “The pace of industry change and innovation in commerce and payments requires maximum flexibility to stay competitive and drive global leadership,” the company said.
In addition, eBay said, “the benefits of the existing relationships between eBay and PayPal will naturally decline over time and can be optimized in arm’s length operating agreements between the two entities.”
The company expects the spinoff, which will be tax-free, to be completed in the second half of 2015. In the June quarter, PayPal boosted sales 20% to $1.95 billion while, in eBay’s core marketplace, revenue increased 9% to $2.17 billion.
EBay shares were up nearly 8%, to $56.71, at 2:15 p.m. on Tuesday. A separately-traded PayPal “might have better success in securing a higher multiple than what is implied in the current total enterprise valuation,” Keefe Bruyette & Woods said in a research update.
Source: Wall Street Journal EBay Reverses Course, Decides to Spin Off PayPal