#CITYHITZ NEWS: eBay split to create independent PayPal

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US online auction giant eBay announced plans Tuesday to spin off PayPal, a move designed to help the unit compete better in the fast-moving online payments segment.
The plan, to take effect next year, comes after months of pressure from activist investor Carl Icahn, who had assailed eBay for poor management and claimed that keeping eBay tied with PayPal depressed the value of both units.
An eBay statement said that a board review concluded that "a changing competitive landscape creates enormous opportunities for eBay and PayPal" and that "separation will create sharper strategic focus" for each unit.
Company president and chief executive John Donahoe said that "for more than a decade eBay and PayPal have mutually benefited from being part of one company," but that the situation had now changed.
"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.
The move comes with the online payments segment facing new challenges from the likes of Apple, which introduced a mobile payments platform using its iPhones, and newcomers such as Square.
"The pace of industry change and innovation in commerce and payments requires maximum flexibility to stay competitive and drive global leadership," the eBay statement said.
The split will give shareholders "more targeted investment opportunities" and will increase the value of the company over the long term, the statement said.
PayPal accounted for 41 percent of eBay's revenues last year and has more than 152 million active users. Shares leap Donahue and chief financial officer Bob Swan will lead the transition of both businesses, the statement said. But they will not hold executive management roles in the two new companies. The "new" eBay will be led by Devin Wenig, current president of eBay Marketplaces.
The independent PayPal will be headed by Dan Schulman, who comes from American Express after holding top jobs at AT&T, Priceline, and Virgin Mobile.

eBay acquired PayPal in 2002 for roughly $1.5 billion in shares, integrating the payment service that had already been widely used for online auctions.
PayPal over the years has expanded beyond a simple payment mechanism for eBay auctions.
According to eBay, PayPal facilitates one in every six dollars spent online today, or some $203 billion over the past 12 months. And PayPal has moved into mobile payments with the acquisition of the payment processing group Braintree, boosting its own mobile platform called OneTouch.
After the announcement, eBay shares leapt 6.8 percent to $56.22 in late morning trade, and analysts reacted positively.

Forrester Research analyst Denee Carrington said the plan makes sense because PayPal "has outgrown" eBay. "The payments landscape is hyper-competitive, the pace of change is accelerating and everyone is gunning for PayPal," she said. "The split will give PayPal greater agility to help it achieve its full potential."

Shebly Seyrafi, analyst at FBN Securities, said the split "could be a positive development for eBay as it creates more focused entities and as it allows investors to invest more directly in the faster-growing business (PayPal)."

The plan also comes with eBay facing a potential threat from Alibaba, the Chinese online retail giant which raised a record $25 billion in a stock offering to fuel global expansion plans.
BMO Capital Markets analyst Edward Williams said that even though the timing comes as a surprise, the plan could make sense.

"With different growth profiles and different competitive challenges, the decision to separate the business should allow both to operate more efficiently -- allowing each business to pursue the right capital structures and growth trajectories for their businesses," he said in a note to clients.

 

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