Share prices of eBay increased by as much as 6.8 percent after The Information tech news website reported that there are plans for the company to spin off PayPal by next year.
The Information reported that eBay, the biggest online marketplace in the world, has been telling possible candidates for the vacant CEO position at PayPal that it is thinking about spinning off the division.
eBay stocks soared after the report was released, eventually settling to close at $55.89 at the close of the market, representing a 4.7 percent increase and up 1.9 percent for the year.
However, eBay CEO John Donahoe has repeatedly stated his belief that eBay and PayPal are a stronger business together than separated.
"We are blessed with two great businesses and will continue to aggressively drive growth for PayPal and eBay," said Donahoe on a call with analysts. "We and our board will remain objective and open-minded in assessing alternatives which we continue to do. We will make decisions that maximize long-term shareholder value, and we will do what's best for PayPal and eBay to enhance their growth and competitive positions."
Investors, on the other hand, believe that PayPal as a single business will be able to attract more customers through adding more retailers to use its services. Some retailers are not keen on using eBay, and as such have also moved away from using PayPal as their payment facilitator.
The previous CEO of PayPal, David Marcus, resigned from his position to join Facebook as the social network's chief for messaging products.
Carl Icahn, an activist shareholder who owns 2 percent of eBay, campaigned earlier in the year for the company to spin off PayPal due to mismanagement of the business by eBay executives, including Donahoe. Icahn, however, rescinded on a planned proxy fight after eBay said that it will bring David Dorman, an ally of Icahn and CVS Caremark Corp. Chairman, into the company's board of directors.
Keith Rabois, a venture capitalist that is a former executive at PayPal, told Bloomberg that he thinks eBay and PayPal should go on separate ways. In addition, Rabois also suggested the idea that eBay should rebrand itself into PayPal.
"Just rename the company. It's a really simple solution. You could do it in probably 24 hours. A lot less financial gimmicks involved, you don't have to hire investment bankers, and various other things, but you get all the benefit. The market cap will appreciate PayPal if you just change the brand," Rabois said.
