EBay Inc to spin off PayPal next year

EBay Inc plans to spin off payment gateway PayPal next year, its fast-growing payments business, as per the advice of activist investor Carl Icahn for a leaner company better equipped to compete in the competitive mobile payments market, Reuters reported.

EBay's shares shot as much as 8 per cent after the company said it would spin off PayPal as a publicly-traded company in the second half of 2015, a transaction that would be tax-free to shareholders.

The activist investor's proposal had earlier been resisted by eBay chief John Donahoe, saying PayPal was integral to eBay's business, and vice versa.

Icahn, eBay's sixth-largest shareholder with a 2.48-per cent stake as of 30 June, backed off from his demand in April, withdrew his two nominees to eBay's board, but the company added a 10th independent director, by way of a concession.

Several activist investors had been pressuring companies to spin off assets as a way to create value. B/E Aerospace Inc and JDS Uniphase were among those  that had agreed, while others such as Darden Restaurants Inc and EMC Corp were fighting it out.

Donahoe, in an interview with The New York Times, acknowledged that EBay was acting in line with Icahn's proposal, though he contended the company had arrived at its conclusion through "a deliberate process" and not under pressure.

According to industry experts, a separated PayPal would better attract retail customers who had shied away due its connections to their rival eBay, adding that the move would help the two companies focus more on bolstering their separate businesses, even as they made them attractive take-over targets, Bloomberg reported.

They also noted that the corporate split, which would see eBay CEO John Donahoe step down when the companies separated next year reflected the increasingly fierce competition of online retailing.

That rivalry was getting especially heated with Apple's recent unveiling of online-pay service, Apple Pay, which was expected to be a formidable competitor to PayPal.

Tech analyst Rob Enderle said this made a lot of sense for both companies that were facing massive competition individually. He added Carl Icahn did get it right every once in a while.

Founded in 1995, San Jose-based eBay had emerged as an online retailing giant with over than 128 million users who had bought or sold items on the site over the previous 12 months. Further its online payment arm, PayPal, had been a huge financial engine since eBay bought it for about $1.3 billion in 2002.