Ebay will spin off PayPal into its own business starting next year.
PayPal, the online payments juggernaut, is seen as the real crown jewel of the Ebay business. And investors have been clamoring for a way to unlock PayPal’s value.
EBay’s stock shot up 11% on the news.
The activist investor Carl Icahn, in particular, has been a big advocate of spinning off PayPal.
The New York Times explains why a spinoff was favoured from Icahn’s perspective:
PayPal was a central focus of a lengthy battle between eBay and Mr. Icahn, who demanded a spinoff of the unit as a way to generate value for shareholders. Such a move, the hedge fund billionaire contended, would highlight PayPal’s own strengths while letting its management team and eBay’s focus on their own core businesses.
And creating a separate board for PayPal could help remove what Mr. Icahn argued were conflicts of interest with the payment processor’s parent.
In the announcement, eBay said that a recent strategic review of the company determined that both eBay and PayPal would be better off with a sharper focus, and that the benefits of being together in the past were likely to fade.
According to the press release, PayPal revenue grew 19% over the last year to $US7.2 billion. The announcement also says that PayPal facilitates one in six dollars spent online. EBay revenue (excluding PayPal) is still a little bigger ($9.9 billion) but growth is much slower.
This slide, from the presentation, has the core summary of what’s going on.
And this slide shows what an incredible run PayPal has had over the last decade
Here’s the full press release….
eBay Inc. to Separate eBay and PayPal into Independent Publicly Traded Companies in 2015
Devin Wenig, president of eBay Marketplaces, to become CEO of new eBay company following separation
American Express executive Dan Schulman joins PayPal immediately as President and CEO designee for PayPal post-separation
eBay Inc. President and CEO John Donahoe and CFO Bob Swan to oversee separation and serve on boards of new independent companies
- Maximizes strategic focus and flexibility for eBay and PayPal to capitalise on respective growth opportunities in highly competitive, rapidly changing global commerce and payments markets
- Preserves eBay and PayPal relationships through arm’s length operating agreements
- Provides shareholders with more targeted investment opportunities; best path to sustainable shareholder value
Sept 30, 2014 — eBay Inc. today said its Board of Directors, following a strategic review of the company’s growth strategies and structure, has approved a plan to separate the company’s eBay and PayPal businesses into independent publicly traded companies in 2015, subject to customary conditions.
Creating two standalone businesses best positions eBay and PayPal to capitalise on their respective growth opportunities in the rapidly changing global commerce and payments landscape, and is the best path for creating sustainable shareholder value, the company said.
“eBay and PayPal are two great businesses with leading global positions in commerce and payments,” said eBay Inc. 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 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.”
As the company has previously stated, eBay’s board of directors has a practice of regularly reviewing the company’s growth strategies and structure, and assessing all alternatives.
As part of such assessments, the board regularly explores the following questions: Will separation make eBay and PayPal more competitive? Will separation be possible without distracting innovation and execution? And, will separation create sustainable value for shareholders over time?
In its recently completed review, the board concluded:
- A changing competitive landscape creates enormous opportunities for eBay and PayPal; separation will create sharper strategic focus and better position each business to capitalise 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.
- The benefits of the existing relationships between eBay and PayPal will naturally decline over time and can be optimised in arm’s length operating agreements between the two entities. Arm’s length operating agreements can formalise the existing relationships between the two companies and capture ongoing synergies.
- 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.
The company expects to complete the transaction as a tax-free spin-off in the second half of 2015, subject to market, regulatory and certain other conditions.
eBay Inc. President and CEO John Donahoe and company CFO Bob Swan will be responsible for leading the separation of each business, with board oversight. This includes determining appropriate management and capital structures for eBay and PayPal, and putting in place appropriate operating agreements. Neither Donahoe nor Swan will have an executive management role in the new eBay and PayPal companies.
But to provide continuity, they each expect to serve on one or both of the boards of the two companies.
The “new” eBay
Devin Wenig, currently president of eBay Marketplaces, will become CEO of the new eBay company. As CEO of eBay, Wenig will lead the eBay Marketplaces and eBay Enterprise businesses.
Revenue over the last twelve months1 for these two businesses grew approximately 10% year-over-year to $US9.9 billion, with eBay Marketplaces accounting for about $US8.7 billion. eBay Marketplaces and eBay Enterprise collectively handled approximately $US85 billion of gross merchandise volume and gross merchandise sales, which grew 13 per cent year over year.
Scott Schenkel, currently the CFO of eBay Marketplaces will become the CFO of the new eBay company.
A global commerce leader with 149 million active buyers, eBay is one of the world’s top 30 global brands and a top 10 retail global brand.2 Offering consumers worldwide extraordinary value and selection, eBay has more than 700 million live listings at any given time, and approximately 75% of sold items are new.
eBay also is a leader in emerging competitive battlegrounds such as mobile and cross-border commerce. eBay has an installed mobile base of 200 million apps, generating $US20 billion in mobile volume. Cross-border commerce represents 20% of eBay’s gross merchandise volume and 61% of Marketplaces revenue is international.
“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.”
The “new” PayPal
Concurrent with the announcement of the business separation plan, the company also today announced the appointment of Dan Schulman to be President of PayPal, effective immediately, and CEO-designee of the standalone PayPal company following separation.
Schulman joins PayPal from American Express, where he was president of the company’s Enterprise Growth Group. A seasoned leader in multiple industries, Schulman has held senior executive and CEO roles at AT&T, Priceline and Virgin Mobile, prior to joining American Express.
“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.”
PayPal is a rapidly growing global leader in digital payments and the most trusted digital wallet, with more than 152 million active registered accounts. Accounts grew 15% year-over-year last quarter. Revenue over the last 12 months grew by 19% over the prior year period to approximately $US7.2 billion.
PayPal facilitates one in every six dollars spent online today. Total payments volume over the last 12 months increased by 26% to $US203 billion, providing merchants and consumers worldwide a faster, safer way to pay and be paid. PayPal is fully localised in 26 currencies, is available in 203 markets worldwide and has relationships with 15,000 financial institutions. Representative of its global reach, PayPal is the No. 1 payments processor for business to consumer exports for Chinese merchants.
With acquisitions such as Braintree and its new One Touch mobile payments experience, PayPal continues to lead and innovate in mobile payments. One Touch is the industry’s first and only single touch payments experience. PayPal processed $US27 billion in mobile payments volume in 2013. PayPal expects to process 1 billion mobile transactions in 2014.
A strong record of delivering shareholder value
Since 2008, eBay Inc.’s board and management team have led a successful turnaround of the company’s core eBay Marketplace business; have dramatically grown PayPal and drove digital payments innovation; and through 37 acquisitions have built a strong portfolio of global commerce and payments technologies, assets and capabilities.
The company’s board and management team have a clear track record of making the right decisions for eBay and its shareholders.
“Together, eBay and PayPal have delivered substantial value creation for our shareholders,” Donahoe said. “We believe eBay and PayPal will continue to do so as separate, independent companies. Tremendous opportunities exist for each business.”
Goldman, Sachs & Co. and Allen & Company LLC are serving as financial advisors and Wachtell, Lipton, Rosen and Katz is serving as legal counsel to eBay Inc.
1 Last four public quarters
Conference Call and Webcast
eBay Inc. will host a conference call to discuss the separation of eBay and PayPal at 8:00 am ET. A live webcast of the conference call, together with a slide presentation can be accessed through the company’s Investor Relations website at http://investor.ebayinc.com. In addition, an archive of the webcast will be accessible for 90 days through the same link.
eBay Inc. uses its Investor Relations website at http://investor.ebayinc.com as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Accordingly, investors should monitor, in addition to following press releases, SEC filings, public conference calls and webcasts.
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