EBay and PayPal to separate after shareholder clash

September 30, 2014 04:46 AM

EBay Inc., the world’s biggest online marketplace, said it would split off its payments arm PayPal, finally bowing to pressure from activist shareholder Carl Icahn after nine months.

EBay and PayPal will become independent companies in 2015, subject to customary conditions, the San Jose, California-based company said in a statement. Chief Executive Officer John Donahoe, who said in March a full separation was “not a good idea,” won’t have an executive management role in the businesses.

Donahoe sparred with Icahn for two months at the beginning of the year after the billionaire bought a stake in January, and the clash took an hostile tone until a settlement in April. A stand-alone marketplace business may become more attractive as an acquisition, which investors have been thinking about since Alibaba Group Holding Ltd. ’s initial public offering, Piper Jaffray analysts said in a note. Meanwhile PayPal investors will contemplate the risk of direct competition from Apple Pay and Google Wallet, they said.

The company’s sum-of-the-part value may be worth about $62 a share, according to Piper Jaffray. The stock jumped 7.6 percent to $56.65 before the markets opened today, for a market capitalization of about $70 billion.

Growth Engine
EBay, whose online marketplace sells everything from motorcycles to golf clubs via auctions and at fixed prices, bought PayPal in 2002 to add online-payment services. The unit, whose sales almost tripled sales in the five years ended in 2012, has since become a growth engine for the company. Under David Marcus, who left in June to join Facebook Inc., PayPal expanded its mobile services.

The split may value PayPal at $47 billion, applying a multiple of 1.8 times trailing 12-month revenue -- similar to Amazon.com Inc.’s -- to EBay’s marketplaces and advertising businesses, Bloomberg Industries analysts Praveen Menon and Paul Sweeney said. PayPal’s superior growth rate and unlocked value may explain the reasoning behind the separation, they wrote.

The move isn’t designed to make either unit up for sale, Donahoe said on a conference call. To help the transition, Donahoe and Chief Financial Officer Bob Swan will be responsible for leading the separation of each business, with board oversight.

Devin Wenig, currently president of EBay Marketplaces, will become CEO of the new EBay company. Dan Schulman, who is joining PayPal from American Express, will be president of PayPal, effective immediately, and CEO-designee of the stand-alone PayPal company following separation.

Icahn didn’t immediately respond to requests for comment.

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