What The eBay PayPal Split-Up Means For Them And For You

Chris CrumBusiness

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Big news in the world of e-commerce. eBay announced that it will separate eBay and PayPal into two independent, publicly-trade companies next year.

Do you expect each of these companies to thrive separately? Let us know what you think.

Investor Carl Icahn had famously called for such a spin-off, and it looks like he is now getting his wish. He's reportedly the company's six-largest shareholder.

The decision came after the Board of Directors reviewed the company's growth strategies and structure. They concluded that creating two separate businesses best positions them to "capitalize on their respective growth opportunities in the rapidly changing global commerce and payments landscape."

Indeed, both eBay and PayPal face greatly increased competition from numerous big players including Google, Apple, Amazon, Alibaba, and Square, to name a few. Then there are companies like Stripe, which already has deals in place with Facebook and Twitter.

“eBay and PayPal are two great businesses with leading global positions in commerce and payments,” said President and CEO John Donahoe. “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,” Donahoe added. “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.”

In its announcement, eBay listed the following as three conclusions the Board came to upon completing its review:

1. A changing competitive landscape creates enormous opportunities for eBay and PayPal; separation will create sharper strategic focus and better position each business to capitalize on those growth opportunities as independent companies. The pace of industry change and innovation in commerce and payments requires maximum flexibility to stay competitive and drive global leadership.

2. The benefits of the existing relationships between eBay and PayPal will naturally decline over time and can be optimized in arm’s length operating agreements between the two entities. Arm’s length operating agreements can formalize the existing relationships between the two companies and capture ongoing synergies.

3. This is the best path for delivering sustainable shareholder value. eBay is a leading global commerce platform that has benefited from PayPal, and PayPal is a strong, rapidly growing global payments leader because it has been part of eBay. But beyond 2015, eBay and PayPal will each benefit more and create greater value from the strategic focus, speed, flexibility and agility that come with being independent publicly traded companies.

Donahoe and CFO Bob Swan will lead the separation of each business with oversight from the board, including the determination of management and capital structures for both companies. Interestingly, neither Donahoe nor Swan will have an executive management role in either of the separated companies, though they'll most likely serve on the Boards.

eBay's new CEO will become Devin Wenig, who is currently president of eBay Marketplaces. Scott Schenkel, who is currently CFO of eBay Marketplaces will become CFO of eBay.

“eBay has been a leading innovator in the world of commerce for almost 20 years; it’s an incredibly special business,” Donahoe said. “Since joining eBay three years ago, Devin has proven to be an exceptional global leader and operating executive. He is steadily enhancing eBay’s unique assets and capabilities and creating new commerce experiences to ensure long-term growth and commerce leadership. He will make a fantastic CEO of eBay.”

Dan Schulman joins PayPal from American Express, where he was president of Enterprise Growth, to be President of PayPal, effective immediately, he will also be responsible for designating the CEO of the standalone PayPal company.

“As both a leading global technology platform and a financial services business, PayPal requires a diverse blend of leadership skills and operating experience in its president and future CEO,” Donahoe said. “Dan has a proven track record of leading complex technology businesses at scale, driving sustainable growth and understanding how to innovate to drive competitive advantage and deliver compelling experiences for customers. I am thrilled to have him lead PayPal forward as a publicly traded, independent global payments leader, and we welcome him to the team.”

What does the mean split mean for current customers and businesses using eBay and PayPal? eBay had this to say:

The creation of independent eBay and PayPal businesses will take up to 12 months to complete so this has no immediate impact on your account. Likewise, you can continue to count on everything you expect from eBay today. Innovation, value, trust, selection, and global reach will remain central to our business. And we will continue to work closely with PayPal to ensure payments remain a seamless part of the eBay experience.

As an active customer, you help make eBay what it is. eBay has always been more than a store. It is a community of people—buyers and sellers—connecting around the world. Thank you for being part of this amazing community. As we begin this next chapter of the eBay story, you have our commitment to make sure people like you remain at the heart of everything we do.

The spin-off is expected to be completed in the second half of 2015. It is subject to market, regulatory, and other conditions.

Some are already speculating that another company like Google could make a play to acquire PayPal, but given that it's not even going to be its own company for another year, there's no telling what will happen in the space in the meantime.

eBay has a history of getting rid of companies it previously acquired. It sold Skype to an investment group, which in turn sold it to Microsoft. It also sold StumbleUpon, which became profitable a year ago.

Do you think users will benefit from the separation of eBay and PayPal? Will it make any difference? Share your thoughts in the comments.

Image via Wikimedia Commons

Chris Crum
Chris Crum has been a part of the WebProNews team and the iEntry Network of B2B Publications since 2003. Follow Chris on Twitter, on StumbleUpon, on Pinterest and/or on Google: +Chris Crum.