eBay to Spinoff PayPal

Carl Icahn was right! After saying they weren’t going to sell PayPal, eBay ($EBAY) said today that they’re going to spin off the unit next year. Icahn, who’s known as an activist investor, had pressured the company for some time to ditch PayPal. eBay’s stock jumped whenever there was a hint of such a move—and sure enough, the shares are up strongly today. Of course, with the huge Alibaba IPO, a lot of folks inside the C-suites at eBay probably wondered what PayPal could do on the open market.

I anticipated this move from eBay in a recent CWS Market Review:

PayPal is a big money-maker for eBay, and there’s been a lot of pressure on the company to sell the division. As I noted a few weeks ago, just a rumor of that news sent shares of eBay higher. Even though eBay has said they’re not interested in selling PayPal, I think the market’s evident interest will prevail. It usually does. I can’t say whether Apple Pay will crush PayPal, but I think it will add more pressure on eBay to move. The board also has “cover” to make an about-face.

Here are some details on today’s news from Reuters:

Donahoe acknowledged in an interview with the New York Times on Tuesday that eBay was following Icahn’s recommended strategy. But he contended the company arrived at its conclusion through “a deliberate process” and not by reacting to outside pressure.


“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,” Donahoe said in a statement.

EBay said revenue in its marketplaces and enterprise businesses increased 10 percent to $9.9 billion in the last four quarters, while PayPal’s revenue rose 19 percent to $7.2 billion.

“By separating marketplace and PayPal, it could make marketplace more attractive as an acquisition, which is something that investors have been thinking about since Alibaba’s (BABA.N) IPO,” PiperJaffray analysts wrote in a research note.

The shares are currently up about 7% today.

Posted by on September 30th, 2014 at 10:27 am

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