Icahn and I DID: eBay volte-faces, spins PayPal into separate biz

Boards scream in terror as bolshy investor's demands met

eBay has spun off its PayPal subsidiary after months of telling “noisy” activist investor Carl Icahn to shut up about it because it would never happen.

With absolutely no sense of irony or tip of the hat to Icahn whatsoever, the online tat bazaar’s chief John Donahoe said in a statement today that a strategic review of the board had come to the conclusion that it would be better for eBay and PayPal to operate separately.

“eBay and PayPal will be sharper and stronger, and more focused and competitive as leading, standalone companies in their respective markets,” he said.

“As independent companies, eBay and PayPal will enjoy added flexibility to pursue new market and partnership opportunities,” added Donahoe. “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.”

That is quite a different hymn from the one Donahue and the rest of eBay’s management was singing to back in the spring.

“The thing to keep in mind is that we have more insight around our own company than anyone on the outside can,” Donahoe opined in March. “It's easy to say when you're sitting on the outside, 'Oh, simplistically separate, and we'll do some short-term financial manoeuvring to drive the share price up'."

That same month, the firm asked shareholders to vote against Icahn’s proposal that eBay spin out PayPal as a separate company, despite his warning that the payments firm would “wither” if it stayed a subsidiary of eBay.

In fact, eBay was so vehement in its rejection of Icahn’s proposal that the famously agitating investor eventually gave up calling for a PayPal spinout – although he did enter into a confidentiality agreement with the firm at the time, so maybe this move has been brewing since then.

“Regarding the confidentiality agreement, we have entered into similar agreements in the past with other companies and, as results show, they have worked with great success,” Icahn said at the time.

“I am optimistic that this arrangement with eBay will enhance our ability to discuss large issues affecting the company with greater intelligence and will help to enhance shareholder value.”

eBay is going to turn PayPal into a separate company after 12 years as a subsidiary of the online marketplace. The payments processing firm will be listed as a publicly trading company when the split goes through next year.

Donahoe will also lose his seat at the head of the table once the pair have split, as current president of eBay Marketplaces Devin Wenig becomes chief of eBay Inc and senior American Express exec Dan Schulmann takes over as chief of PayPal. Both he and current CFO Bob Swan will step down from management, but remain on the boards of one or both of the companies.

eBay bought PayPal all the way back in 2002 for a mere $1.5bn. Analysts now estimate that the business could be worth as much as $30bn. ®