EBay plans '15 spinoff of PayPal

Mobile payment competition spurs move, analysts say

The sun reflects off windows at eBay’s PayPal Inc. headquarters in San Jose, Calif., in this file photo. EBay said Tuesday it will spin off PayPal into a separate, publicly traded company.
The sun reflects off windows at eBay’s PayPal Inc. headquarters in San Jose, Calif., in this file photo. EBay said Tuesday it will spin off PayPal into a separate, publicly traded company.

SAN JOSE, Calif. -- EBay said Tuesday that it will spin off PayPal into a separate, publicly traded company, more than a decade after acquiring the lucrative online payments business.

The move is a response to demands from investors who have for months called for PayPal to become its own company. The fastest-growing branch of eBay, PayPal was often thought to be bogged down by eBay's retail operations.

Earlier this year, activist investor Carl Icahn engaged in a public dispute with eBay after his proposal to spin off PayPal was rejected by Chief Executive Officer John Donahoe.

Donahoe will step down from his role as CEO once the separation is complete late next year, the company said Tuesday, and he will not have a management role at either of the companies.

Investors applauded news of the spinoff, and eBay's shares rose $3.97, or 7.5 percent, to close Tuesday at $56.63.

Analysts say the spinoff will allow PayPal to grow more quickly and compete more aggressively in the mobile payments space, which is heating up with new entries such as Apple Pay, which the Cupertino, Calif., company unveiled in early September.

PayPal has often been seen as the more progressive branch of eBay, an e-commerce giant whose other businesses include an online auction site, mobile shopping apps, and shipping and same-day delivery services. Despite its comeback from a near collapse after the dot-com bust, San Jose-based eBay, founded in 1995, has struggled at times to keep up with dramatic changes in the retail industry. PayPal generates nearly half the company's revenue, and its growth outpaces any other division of eBay.

"Breaking off from eBay will provide PayPal with more autonomy to compete in the payments space, particularly with respect to Apple Pay and other emerging mobile wallet providers," eMarketer analyst Bryan Yeager wrote in a note Tuesday.

Last year, eBay's total revenue was $16 billion, with its marketplaces division contributing $6.8 billion of that, an 11.8 percent increase over 2012. PayPal generated $6.1 billion last year, an 18.9 percent jump over the previous year.

After settling the dispute with Icahn, who still maintained PayPal would be better off as an independent company, eBay's leadership gave no indication that a separation would happen anytime soon.

Dan Schulman, 56, an executive at American Express, will be the new president at PayPal once Donahoe has departed, and Devin Wenig, currently president of eBay Marketplaces, will become CEO of eBay.

PayPal was founded in 1998 by technologist Max Levchin and investor and entrepreneur Peter Thiel, and it was acquired by eBay in 2002 for $1.5 billion. Its early members, who include Elon Musk, who went on to start Tesla and SpaceX, and Reid Hoffman, founder of LinkedIn, have become some of the most successful entrepreneurs in Silicon Valley.

Business on 10/01/2014

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