PayPal to split from eBay in 2015 and go public

PayPal is splitting from eBay and will become a separate and publicly traded company next year. Almost a year after billionaire Carl Icahn opened a proxy fight and pressured eBay for a spinoff of PayPal, eBay President and CEO John Donahoe announced the split Tuesday.

The mobile payment service PayPal is splitting from eBay and will become a separate and publicly traded company next year.

Almost a year after billionaire Carl Icahn opened a proxy fight and pressured eBay for a spinoff of PayPal, eBay President and CEO John Donahoe announced the split Tuesday.

Donahoe will step down as CEO of eBay after overseeing the separation of the two companies and will not have a management roll in either of the two afterward. He may have a seat on the board at one or both, along with eBay Chief Financial Officer Bob Swan.

“eBay and PayPal are two great businesses with leading global positions in commerce and payments,”  eBay Inc. President and CEO John Donahoe said in a statement. “For more than a decade eBay and PayPal have mutually benefited from being part of one company, creating substantial shareholder value. However, 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 and PayPal will be sharper and stronger, and more focused and competitive as leading, standalone companies in their respective markets,” Mr. Donahue continued. “As independent companies, eBay and PayPal will enjoy added flexibility to pursue new market and partnership opportunities. And we are confident following a thorough assessment of the relationships between eBay and PayPal that operating agreements can maintain synergies going forward. Our board and management team believe that putting eBay and PayPal on independent paths in 2015 is best for each business and will create additional value for our shareholders.”

EBay, based in San Jose, California, said that the separation was the best path for growth and shareholder value creation for each business.

EBay is an e-commerce that connects sellers to buyers. PayPal, acquired by eBay in 2002 for $1.3 billion, has been its fastest growing segment.

In the most recent quarter, PayPal gained 4 million new, active registered accounts, up 15 percent, to 152 million.

Consumers who use PayPal can send and receive payments online, with all transactions backed by prepaid user accounts, bank accounts or credit cards. The service is available in 203 markets worldwide and is on track to process 1 billion mobile payments in 2014.

But major competitors are now getting into the mobile payment sector, including Apple.

Last month Apple Inc. announced a new digital wallet service called Apple Pay that is integrated with its Passbook credential-storage app and its fingerprint ID security system.

There is a push away from traditional credit cards, particularly after a string of high-profile data breaches that have ensnared major retailers like Target and Home Depot.

Citibank predicts that the mobile payments business will grow from $1 billion last year, to nearly $60 billion by 2017.

"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.

Shares of eBay soared more than 11 percent to $58.60 before the opening bell, close to its high for the year.

Dan Schulman, an executive at American Express, will be the new president at PayPal, effective immediately. The 56-year-old will become PayPal's CEO once the separation takes place.

Devin Wenig, currently president of eBay Marketplaces, will become CEO of the new EBay Inc. He will lead the eBay Marketplaces and eBay Enterprise businesses.