At Long Last, eBay Sets PayPal Free

Beginning in 2015, eBay will split from the payments service PayPal.

Photo by Joe Raedle/Getty Images

Today eBay announced that it will spin PayPal off into a separate publicly traded company in 2015. Aside from being a major breakup, the move is a dramatic about-face for a company that, until very recently, had insisted its retail and payments operations were better off together.

John Donahoe, eBay’s chief executive, told Reuters that the decision was based on the feeling that “the pace of change in this competitive environment … is accelerating and will continue to over the next three to five years.” That seems like a reasonable statement on Donahoe’s part—Apple Pay, anyone?—but it’s an abrupt change of tone from his comments in recent months. During the Q4 2013 earnings call, Donahoe told listeners that, “PayPal and eBay make sense together for many reasons.” Among them: “eBay accelerates PayPal’s success,” “eBay data makes PayPal smarter,” and “eBay funds PayPal’s growth.” He expressed similar opinions until July.

What changed? For starters, activist investor Carl Icahn has been pushing for the spinoff since the start of this year. “We are happy that eBay’s board and management have acted responsibly concerning the separation—perhaps a little later than they should have, but earlier than we expected,” Icahn said in a statement on his blog. “It is almost a ‘no brainer’ that these companies should be separated to increase the value of these great assets and thus to meaningfully enhance value for all shareholders.” On top of Icahn’s efforts, Reuters reports that activist investor Daniel Loeb had taken a “significant” stake in eBay.

Activist investors weren’t the only ones who felt eBay’s ownership of PayPal was strangling the service. In a Reuters column, Rob Cyran notes that PayPal’s ties to the online retailer were impeding close relationships with huge platforms like Amazon and slowing its adoption of new technology. “Departed co-founder Elon Musk warned two years ago that the plan he wrote at the turn of the century was essentially still in place and that if PayPal didn’t act quickly it would be ‘screwed.’ ”

Judging by the performance of eBay’s stock on Tuesday, investors don’t think the spinoff came too late: Shares soared 7.5 percent.