eBay to Split Off PayPal Into Separately Traded Company Next Year

Online auction giant eBay announced Tuesday that it plans a separation from its PayPal business making it a separate publicly traded company next year.

eBay says American Express exec Dan Schulman will immediately become PayPal’s president and “CEO designee.” Photo: Ogbodo Solution/Flickr

eBay says American Express exec Dan Schulman will immediately become PayPal’s president and “CEO designee.” Photo: Ogbodo Solution/Flickr

The e-commerce company, eBay, revealed its plans to split the PayPal unit into a separately publicly traded company by the beginning of 2015.

An eBay announcement Tuesday said its board came to a decision that “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.”

The surprise move is a huge about-face for eBay’s leadership, including Chief Executive Officer John Donahoe, who resisted shareholder activist Carl Icahn’s calls for a split earlier this year and led a months-long campaign to convince investors that eBay should remain intact, reports Reuters.

The decision was made just after the tech giant Apple introduced a new mobile payment system, Apple Pay that might create a fierce competition to PayPal and Alibaba, China’s massive online marketplace, debuted on the New York Stock Exchange.

“The industry landscape is changing, and each business faces different competitive opportunities and challenges,” said eBay chief executive John Donahoe in a news release, who also claims that he might step aside by the middle of 2015 when the split is expected to become official.

“I had a good role model named Meg Whitman. When Meg was CEO of eBay, she said she was going to do it for a decade. And she stepped down eight years ago in her early 50s and created opportunity for me, for which I’m enormously grateful. Next year will be my 10th year at eBay and I’ll be creating opportunity for two great leaders to become CEO,” Donahoe told CNBC in an interview.

As expected, Icahn praised eBay’s spinoff. “As I have said in the past and have continued to maintain, it is almost a “no-brainer” that these companies should be separated to increase the value of these great assets and thus to meaningfully enhance value for all shareholders,” he said in a statement.

In a note, analyst eMarketer said the split would provide PayPal more autonomy to compete, particularly with respect to Apple Pay and other emerging mobile wallet providers.

As a result of a separation, the Devin Wenig, eBay Marketplaces president, will become the new CEO of eBay. Dan Schulman, president of the American Express Enterprise Growth Group, will take the place of the new CEO of PayPal.

PayPal, founded in the late 1990s, was originally acquired by the San Jose-based online marketplace in 2002 for $1.5 billion and gradually became its most progressive segment.  PayPal customers can make payments and transmission of money just using their bank accounts without  dealing with using credit or debit cards or checks.

It also advanced in the mobile payment arena with its acquisition of companies like Braintree and its One Touch mobile payment service. On September 23rd, 2014, PayPal announced partnerships with three major Bitcoin payment processors: BitPay, Coinbase and GoCoin.

Scott Ellison, PayPal’s senior director of corporate strategy, said about it: “We are announcing PayPal’s next step in helping merchants accept Bitcoin payments. PayPal has entered into agreements with leading Bitcoin payment processors.”

“This move comes after what seems like months of speculations of PayPal’s slow shift from appearing wary of cryptocurrencies towards adopting Bitcoin outright,” reports CoinSpeaker.

PayPal has more than 152 million active registered accounts, gaining  4 million new ones in the most recent quarter, with revenue over the last 12 months at $7.2 billion. That represents a growth rate of 19 percent over the previous year. PayPal handles one in every six dollars spent online today.

Meanwhile, eBay’s shares jumped on the news, rising by more than 7 percent by midday. They were on pace for their best day since July 19, 2012, when they rose 8.6 percent.

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