eBay and PayPal to split

ebay sign

For more than a decade eBay and PayPal have mutually benefited from being a single company, but today the e-commerce giant announced that it will be spinning off its faster-growing payments arm during the second half of next year.

The turnaround marks a major victory for activist investor Carl Icahn, who has been pushing for eBay and PayPal to split, over eBay chief executive Jon Donahoe, who will be stepping down after overseeing the separation, as will finance chief Bob Swan.

Early this year, eBay managed to fight off Icahn’s advances, as he argued that a split would allow each company to focus on their own strengths and create more value from shareholders. Icahn relented after gaining one seat on eBay’s board.

As eBay’s shares have lagged behind the broader technology market, dropping 5.6 per cent over the past year as of Monday, the announcement of Apple Pay has also placed another challenger in the payments market.

Donahue will be replaced by Devin Wenig, the current president of eBay Marketplaces. American Express executive Dan Schulman will head the new PayPal, immediately taking over as president. Both Swan and Donahue may join the boards of the companies at a later date.

The decision followed a strategic review of the company’s growth strategies and structure, eBay said.

“eBay and PayPal will be sharper and stronger, and more focused and competitive as leading, standalone companies in their respective markets,” said Donahoe. “As independent companies, eBay and PayPal will enjoy added flexibility to pursue new market and partnership opportunities.”

“We are confident following a thorough assessment of the relationships between eBay and PayPal that operating agreements can maintain synergies going forward. Our board and management team believe that putting eBay and PayPal on independent paths in 2015 is best for each business and will create additional value for our shareholders.”

PayPal has been on pace to overtake eBay’s core marketplace by sales. In the June quarter, the payments unit boosted sales 20 per cent to $1.95 billion and added 4.1 million new active customers from the first quarter, to 152.5 million. PayPal facilitates one in every six dollars spent online, eBay said. At its namesake marketplace, revenue rose 9% to $2.17 billion as the number of active accounts increased by 3.8 million to 148.9 million.

Some analysts believe that the split will allow PayPal to pursue other partnerships with with groups such as Apple and Alibaba.

Shares in eBay company rose 11 per cent in New York premarket trading in reaction to the news.

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