eBay set to spin PayPal off as separate company

It looks like ecommerce giant eBay has caved into the demands of activist hedge fund magnate Carl C Icahn and will spin PayPal off as a separate, publicly listed company. eBay company made the announcement today, saying that the two companies would preserve their relationship through “arm’s length operating agreements”.

There can, however, be no doubting the fact that the move is a fairly drastic one. By selling of the online payments company it bought more than 12 years ago, eBay is effectively cleaving itself in half.

The amount of disruption caused by the deal is evident in the fact that once it’s complete (some time in 2015), John Donahoe, eBay’s current chief executive, will step down. Devin Wenig, president of eBay Marketplaces will take his place, while American Express executive Dan Schulman will step into the fold as president and CEO of the new PayPal company.

“For more than a decade eBay and PayPal have mutually benefited from being part of one company, creating substantial shareholder value. 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,” said Donahoe. “The industry landscape is changing, and each business faces different competitive opportunities and challenges”.

That’s a pretty big turnaround from the position he took during an analyst call in January.

“We and our board believe the best way to drive long-term shareholder value is to keep eBay and PayPal together, to capitalize on the opportunities,” he said at the time. “And the distraction and dis-synergies of separation would be happening exactly at the wrong time. We’re in this window of opportunity of commerce.”

Icahn’s influence has however been strong, with the activist shareholder determined to prove that splitting up the two companies, and allowing them to focus on their core areas of business, would drive up shareholder value.

Indeed, Donahoe now appears to be singing from Icahn’s choir sheet.

“Together, eBay and PayPal have delivered substantial value creation for our shareholders,” he said. “We believe eBay and PayPal will continue to do so as separate, independent companies. Tremendous opportunities exist for each business.”

As The New York Times’ Dealbook points out, that may have something to do with the emergence of Apple Pay and Alibaba’s initial public offering.

One potentially massive side benefit of the split is that it will probably make eBay competitors more inclined to accept PayPal as a payment method, something they have been reluctant to do until now.