EBay (NASDAQ:EBAY) announced early Tuesday that it would be launching an initiative to split the auction website and PayPal into two separately traded public companies by next year, a move that has been regularly recommended by activist hedge fund magnate Carl C. Icahn this year.
John Donahoe, eBay’s board of directors and CEO, will be stepping down from his post in the middle of 2015. Once the spinoff is completed, Devin Wing, president of eBay marketplaces and former head of the markets division of Thomson Reuters Corp., will become the new head of eBay. Dan Schulman, American Express executive, will be PayPal’s president.
In the next few months, Donahoe and CFO Bob Swan will manage the separation.
The board as well as Donahoe consistently fought against the idea of splitting up eBay and PayPal. The CEO presented the case that there were numerous benefits of keeping the company intact, but noted Tuesday in an interview with CNBC that those positives are declining. The board made the decision during the company’s annual strategic review and believed it would be the best step moving forward.
EBay shares increased 10 percent on the major breaking news story in premarket trading.
“What the proxy fight forced was me to come out and articulate our plan of record, our position at that moment, and that’s what I did. As we’ve continued our annual assessment, looking forward three to five years about how we can best position eBay and PayPal, we think the competitive position and the competitive environment of commerce and payments are going through accelerating change,” Donahoe told the business news network.
“That creates new sets of opportunities and challenges for both eBay and PayPal and (we believe) that operating independently will give eBay and PayPal focused strategic flexibility and an ability to move quickly and decisively in this changing environment.”
Donahoe added that in the next three years eBay will represent less than 15 percent of PayPal’s business “and we can achieve many of the benefits of the synergies through arms-length commercial relationships.” EBay noticed a 10 percent increase in its marketplaces and enterprise businesses in the last four quarters, while PayPal’s revenues soared 19 percent.
Business analysts purport that the writing was on the wall since PayPal has become more independent in recent years. One example often cited is its acquisition of Braintree in order to handle mobile payments for lucrative e-commerce services, such as Uber and Airbnb.
This move could also encourage major online retailers, like Amazon and Alibaba, to use PayPal – it refrained from doing so for so long because PayPal was connected with a big time competitor in eBay.
PayPal was first launched in the 1990s and went public in 2002. It was purchased by eBay for $1.5 billion in stock shortly afterwards. PayPal currently maintains a userbase of 152 million active users and the number of accounts increased 15 percent in the last quarter.
