eBay To Spin Off PayPal So They Can Compete Against Each Other For Worst Company Title
For years, we’ve had to lump eBay and PayPal into a single listing in the Worst Company In America brackets. But next year, these two big brands might have the chance to square off against each other for the title, as eBay announced this morning that it is spinning off PayPal into its own publicly traded business.
“Creating two standalone businesses best positions eBay and PayPal to capitalize on their respective growth opportunities in the rapidly changing global commerce and payments landscape, and is the best path for creating sustainable shareholder value,” reads a statement from eBay about the conscious uncoupling.
eBay acquired PayPal in 2002. The payment processing service now represents about 41% of eBay’s net revenue last year.
The company had until very recently been fighting the idea of spinning off PayPal, saying that the synergy of processing eBay transactions through a business owned by eBay had worked like gangbusters for more than a decade so why stop now?
But activist shareholders, led by billionaire Carl Icahn, have pushed for the split, arguing that the two businesses would operate more efficiently as separate entities. They feared that major online retailers and others would be reluctant to work with PayPal as a processing option because of its corporate link to eBay.
Those in favor of the spin-off pointed out that only about 1/3 of the $203 billion in transactions that PayPal processed last year came through eBay. They contend that a standalone PayPal could continue to do that same level of business with eBay while also expanding its options to make even more money with retailers that compete with eBay.
“[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,” explains eBay CEO John Donahoe, who will step down when the split is finalized during the second half of 2015. “As independent companies, eBay and PayPal will enjoy added flexibility to pursue new market and partnership opportunities. And 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.”
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