PayPal is being spun off from its parent company eBay. It appears that eBay, one of the world's largest online auction platforms, is bowing to pressure from activist shareholder Carl Icahn, who has been pushing for PayPal to become a smaller, more agile company.
Billionaire Icahn said the downsizing would better equip the company to compete in the tough online payments market. eBay's stock price rose 8% after the announcement of PayPal's spinoff. The spinoff will be tax-free for shareholders and will take place in the second half of 2015, a move that eBay CEO John Donahoe has opposed.
The latter argued that PayPal was an integral part of eBay's business and vice versa. For his part, Carl Icahn, eBay's sixth-largest shareholder, backed down from his request in April. In an interview with the New York Times yesterday, Mr. Donahoe admitted that he was following the strategy recommended by Mr. Icahn. However, he was quick to add that his company did not react to outside pressure, but reached this decision after a thorough investigation.
eBay reported that its revenue from its auction platforms grew 10% over the past four quarters, reaching $9.9 billion. PayPal's revenue rose a spectacular 19% to $7.2 billion. "By separating the auction platform from PayPal's electronic payments system, the platform becomes much more attractive for acquisition.
“This is something that many investors have begun to consider after Alibaba’s initial public offering,” PiperJaffray analysts said. After the split is completed, the new EBay will be headed by current EBay chairman Devin Wennig as CEO. PayPal will be led by Dan Salman, the former head of American Express’s online payments business.
