US online retail giant eBay is to spin off its lucrative PayPal arm next year, aiming to help the unit compete better in the …
US online retail giant eBay is to spin off its lucrative PayPal arm next year, aiming to help the unit compete better in the fast-moving online payments segment. After the announcement, eBay shares leapt 7.5% to close at $56.63. Although eBay CEO John Donahoe and CFO Bob Swan will lead the transition of both businesses, they will not hold executive management roles in the two new companies. Instead a ‘new’ eBay will be led by Devin Wenig, current president of eBay Marketplaces, and an independent PayPal will be headed by Dan Schulman, who comes from American Express.
eBay acquired PayPal in 2002 for around $1.5bn and the division accounted for around 40% of eBay’s revenues last year and has more than 152m active users.
The plan comes after months of pressure led by activist investor Carl Icahn, who had attacked eBay for poor management and claimed that keeping eBay tied with PayPal depressed the value of both.
An eBay statement said that a board review concluded that “a changing competitive landscape creates enormous opportunities for eBay and PayPal” and that “separation will create sharper strategic focus” for each unit.
Donahoe said that “for more than a decade, eBay and PayPal have mutually benefited from being part of one company,” but that the situation had now changed.
“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,” he said.
“The pace of industry change and innovation in commerce and payments requires maximum flexibility to stay competitive and drive global leadership,” the eBay statement said.
The split will give shareholders “more targeted investment opportunities” and will increase the value of the company over the long term, the statement added.