eBay And PayPal To Split Up

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

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

AFP / Getty Images JOSEP LAGO

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 up as 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 its 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 a bit 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 "On-going 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 to to 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.

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 2012 that is still run independently. Braintree owns 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."

Investors cheered the announcement, with eBay stock up 9%, or $4.75, to $57.40 in pre-market trading.

The President and CEO John Donahoe, who in the fight with Icahn was very much the main spokesman for keeping the company together, 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."

The New York Times reported that Donahoe will step down after the spinoff.

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

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