Why did eBay spin off PayPal?

Mudassir Ali
Dec 22, 2019 11:30 AM 0 Answers
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Why did eBay spin off PayPal?

Mudassir Ali
- Dec 22, 2019 11:30 AM

Jill Krawczyk gave eBay’s “pat” answer. Really what it came down to was maximizing shareholder value. Certain major shareholders at the time, specifically Carl Icahn, had been pushing for eBay to spinoff Paypal for quite sometime. He felt that Paypal was more valuable and had more growth potential as a stand alone company rather than as a division within eBay. In my opinion Icahn was correct in his assessment. Paypal has much better growth opportunities separated from eBay and eBay was dragging down Paypal’s overall value. The whole was worth less than the sum.

eBay’s management resisted spinning off Paypal for quite awhile, mainly, I think, as a matter of business politics as the rest of eBay’s board as well as their management team didn’t like to be pushed around by Icahn (no one does), who is known for his activist and bullying tactics. They eventually did it within a time table they set. Icahn converted all his shares to Paypal after the spinoff.

This deal has been quite good for eBay so far, mainly by the management change at eBay. They have finally started growing again by appealing to consumers as an interesting mix of being able to find the best of new merchandise at great prices while still being able to find the quirky and unique. Paypal has been able to expand their presence and will soon be able to offer their services to Amazon and Alibaba. I believe also that eBay will have alternative methods of payment after the five year waiting period is up (2020). This will force more downward pressure on merchant account fees, which are still quite high in the e-commerce arena.

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