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After resisting activist shareholder pressure to do so earlier this year, online commerce giant eBay said today that it plans to separate its eBay e-commerce business from its PayPal payments unit, creating two independent publicly traded companies.
After the tax-free spinoff, expected to be completed in the second half of 2015, CEO John Donahoe will step down as the company’s top operating executive and join one or both of the boards of the two new companies. He has been at the company for a decade, serving as CEO since 2008.
Post-separation, top eBay exec Devin Wenig — currently president of the eBay Marketplaces unit — will run eBay and newly hired former American Express exec Dan Schulman will become CEO of PayPal.
In the deal, current eBay shareholders will get one share of each company for each share of the San Jose-based company, which is currently valued at about $65 billion. The eBay part accounts for about $30 billion to $40 billion of that and the PayPal unit the rest. PayPal also employs half of eBay’s 35,000 employees.
In an interview today, Donahoe said the huge move was not prompted by recent and very aggressive efforts by activist investor Carl Icahn to spin off the faster-growing PayPal from the slower-growing e-commerce platform business.
“I did not want to make an important decision in a reactive way based on short-term events,” he said, dismissing any notion of pressure from the voluble activist. “With massive changes across the mobile landscape and in both the online commerce and payments areas, we thought this was finally the right time to make this move … and it gives freedom to both businesses.”
(Still, whatever Donahoe asserts, one would expect Icahn to take a giant bow in 3 … 2 … 1 …)
Icahn started strafing eBay in January, pushing hard for a spinoff of PayPal, which the company resisted just as aggressively.
As Jason Del Rey reported then:
In a call with analysts, CEO John Donahoe outlined why the board wants to keep the two companies together. For one, the eBay platform serves as a cheap way for PayPal to acquire new merchant customers. He also argued that eBay helps fund PayPal’s growth through investments and also provides the payment network with data on a massive amount of transactions that help inform PayPal’s risk management.
“We are seeing more and more commerce and payment competitors try to replicate the eBay-PayPal model,” he said.
In another interview with Del Rey, Donahoe noted: “I’d say commerce and payments are converging, not diverging.”
Now it’s time for diverging, it seems, only months after eBay settled its proxy fight with Icahn in April.
Donahoe noted that the management and the eBay board had determined via its annual strategic overview that the massive changes to the online commerce and payments arenas of late across the globe indicated it was now time to allow each to compete separately.
“Going forward, we felt there was now a value of focus, agility and being able to move quickly,” he said. “It became much more clear as we looked at the trends that the landscape was changing and that each business faced different challenges.”
And, indeed, PayPal is up against quickly increasing competition from upstarts like Square, as well as payment efforts from the giants like Apple, Google and, most recently, China’s Alibaba Group. The eBay business has also been seeing more rivals becoming stronger, including and especially Alibaba. (See Del Rey’s take on that here.)
As part of the separation, eBay and PayPal will sign an arm’s length commercial operating agreements to work together, with payments on both sides for various referrals and services. That’s no surprise since about 30 percent of PayPal’s business is still on eBay, although that is down from 50 percent only a few years ago. Donahoe said eBay projected it would get to 15 percent quickly.
Thus, the split.
“Creating two standalone businesses best positions eBay and PayPal to capitalize 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 in a statement. “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?”
That needed two new leaders “to take our business into its new chapter,” said Donahoe.
Wenig is the insider, who has been leading eBay’s biggest unit since 2011 and who will also have purview over its enterprise division post-split. Currently, the marketplaces division has 700 million listings and $85 billion of gross merchandise volume and gross merchandise sales, which the company said grew 13 percent year over year. The division has been intently focused on mobile of late, with $20 billion in volume in the sector.
Schulman, who will become president of PayPal immediately and CEO-designee of the standalone PayPal, was mostly recently group president of enterprise growth at AmEx. Before AmEx, he held top jobs at AT&T, Priceline and Virgin Mobile, where he was its founding CEO before its sale to Sprint.
PayPal now has 152 million active registered accounts, the company said, revenue of $7.2 billion and total payments volume of $203 billion for the year. It has recently done a series of key mobile acquisitions to goose that business, including Braintree.
“I am thrilled to join an incredible PayPal team and lead this innovative business forward, making money work better for people around the world,” Schulman said in a statement. “PayPal redefined and continues to dramatically change and improve how people pay and get paid, and the opportunities ahead can be even more transformative and meaningful.”
As for Donahoe, who will shepherd the split with CFO Bob Swan, he said he has no plans about his next move after next year. “I am interested in pulling off a healthy succession,” he said, noting that eBay has had two so far from founder Pierre Omidyar to Meg Whitman to him. “I am busy doing this and immersed and committed to doing this well and then I will think about what’s next.”
This article originally appeared on Recode.net.
