Ebay to spin off payments arm PayPal

Ecommerce group eBay is spinning off its PayPal unit as a separate company, handing a major victory to the activist investor Carl Icahn over the future of the rapidly growing payments-processing unit it acquired 12 years ago.

The US company announced yesterday it would divide its business almost in half, with the faster-growing PayPal to be listed as a publicly traded company when the split takes effect in 2015.

Shares in eBay had jumped 7 per cent by late yesterday morning in reaction to the news. John Donahoe, the company's chief executive, said the split would allow each company to focus on its core strengths and challenges. He also announced that he would be stepping down from the company once the demerger had been completed.

Focus on finding niche

PayPal needs to keep up in a fast-evolving payments world shaken by the growth of mobile payments and major new entrants, such as

Apple

. Ebay’s marketplace business, which has been growing more slowly than PayPal, needs to “focus” on finding its niche in ecommerce.

“The pace of change is accelerating – I didn’t think it was possible, to be honest, but it is,” said Mr Donahoe. “We felt that given that change there were bigger opportunities and more diverging opportunities for eBay and PayPal.”

He said that he had given Mr Icahn a call the night before the announcement to alert him of the board’s decision. The hedge fund magnate had launched a proxy fight nine months ago to push the company to spin off its payments business. Ebay’s board appeared to have fought him off and the two sides had announced a truce in April, with Mr Icahn gaining one seat on eBay’s board.

“I think he was pleased,” said Mr Donahoe. “I think he ultimately respected that we’re doing this for the right reasons, to set us up in the medium to long term.”

Consolidation

Mr Icahn released a statement praising the company’s move and called for PayPal to look to consolidate the payments industry further, either through acquisitions or a merger, to fight off competition from newcomers such as Apple Pay.

“The sooner these consolidations take place, the better. As one of the largest shareholders of eBay, I intend to have discussions in the near future with John Donahoe,” he said.

Mr Donahoe will be replaced by Devin Wenig, president of eBay Marketplaces. Dan Schulmann, who joined the company this year from American Express, was appointed president and chief executive-designate of the standalone PayPal.

The move by eBay’s board comes as the company’s shares have lagged behind the performance of the broader technology market. Until the close of trade yesterday, shares in eBay had dropped 5.6 per cent over the past year, while the Nasdaq had gained 19 per cent.

Ebay bought PayPal for $1.5 billion in 2002, and PayPal's founders and employees include some of the most glittering names in technology, such as the venture capitalist Peter Thiel and Elon Musk, founder of Tesla Motors and SpaceX. Some analysts believe the business could be worth more than $30 billion (€23.7 billion). – Copyright The Financial Times Ltd 2014