eBay And PayPal To Split Up

eBay will spin off PayPal into a separate company in 2015.

eBay Inc. to separate eBay and Pay into independent companies in 2H 2015 http://t.co/ktEvhWFdt0

eBay has announced plans to separate itself into two distinct companies, eBay Inc. and PayPal.

After eBay convinced billionaire activist investor Carl Icahn to end his pursuit of a spinoff of PayPal in April, the company announced early Tuesday morning that it would make PayPal an independent company in 2015.

The split comes after PayPal has made up a higher and higher portion of the combined company's revenues and transaction volume since being acquired in 2002. PayPal accounts for 42% of about $17 billion in revenue in the last year, growing much faster than revenue from the core eBay marketplace business. In 2010, PayPal only accounted for just over a quarter of the combined company's total revenue.

The new company is likely to be a magnet for investors wanting a fast-growing stock based purely on payments. The company said in a presentation that the spinoff "provides investors direct exposure to pure play commerce and payments businesses," and that it reached the decision to split the company following "ongoing dialogue with broad group of investors," a likely reference to Icahn, who ended his activist assault on eBay with only the rights to appoint one board member, former AT&T CEO Dave Dorman, and talk with eBay in the future.

At the time, Icahn said, "Our record shows that our involvement with boards and management has greatly enhanced long-term value for all shareholders, and we hope and believe this will continue with eBay." Icahn owns about 2.5% of eBay's shares.

Icahn said in a statement Tuesday morning that is he was "happy that eBay's board and management have acted responsibly concerning the separation – perhaps a little later than they should have, but earlier than we expected."

PayPal also has a collection of payment companies that have little to do with the main eBay business, run under Braintree, the payment processing company it bought in 2013 and which is still run independently. These include Venmo, the popular peer-to-peer payment company. eBay said in a presentation that an independent PayPal would be a "payments leader with unmatched payments platform, global scale and risk management."

Icahn said in his statement that he belives that the payments industry "must be consolidated" and that "in light of the development of strong competition such as the advent of Apple Pay, the sooner these consolidations take place, the better." Icahn also said that he will continue to talk with John Donahoe, eBay's CEO and President.

Investors cheered the announcement, with eBay stock up 7%, or $3.78, to $56.44 in early trading.

Donahoe, who was very much the main spokesman for keeping the company together in the fight with Icahn, said in a statement: "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. The industry landscape is changing, and each business faces different competitive opportunities and challenges."

eBay said Donahoe would step down from his executive role after the spinoff, but could remain as a board member at either company or both.

He added: "eBay and PayPal will be sharper and stronger, and more focused and competitive as leading, standalone companies in their respective markets."

An earlier version of this article said payment processing firm Braintree was acquired in 2012. It was actually purchased in 2013.

This post has been updated with Carl Icahn's statement.

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