eBay revealed that it will be spinning out its PayPal unit into a separate company in the second half of 2015.
The planned separation between eBay and PayPal will usher in new leadership, with eBay Marketplaces president Devin Wenig becoming the new eBay CEO and American Express Enterprise Growth Group president Dan Schulman becoming the new PayPal CEO.
John Donahoe, current CEO of eBay, and Bob Swan, current CFO, will assist in the pending transition but will not be joining either company after the separation.
The separation will mark the closure of what has been an awkward partnership ever since eBay purchased PayPal for $1.5 billion back in 2002. The acquisition was initially thought to foster growth for the two companies as participants in eBay auctions will be driven to use the PayPal service, and PayPal users will find it easier to purchase on eBay. However, eBay has not been able to create additional benefits for itself from the merger aside from additional traffic to its website.
"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," said Donahoe. "The industry landscape is changing, and each business faces different competitive opportunities and challenges."
eBay investor Carl Icahn began to campaign for the separation of the PayPal unit from eBay early this year. Icahn was extremely vocal about his demands to spin off PayPal, despite owning just under a 1 percent share in the company.
The board of eBay repeatedly snubbed Icahn's proposal, but it seems that the company has reversed its decision and is now proceeding with the move that Icahn first proposed.
"This year, we saw that the pace of change in the competitive landscape for both payments and commerce was accelerating in a very exciting way," Donahoe said in an interview with USA Today. "In the context of that, we believe that we can best position eBay and PayPal as independent companies. Which would give them greater focus, greater flexibility and greater ability to move quickly."
Icahn is extremely happy with the decision of eBay to spin out PayPal. However, he believes that PayPal should move to purchase smaller rivals or merge with other major players in the payments field.
"In light of the development of strong competition such as the advent of Apple Pay, the sooner these consolidations take place, the better," Icahn wrote on his website.
A standalone PayPal will now be more appealing as a partner to companies such as Amazon, which previously stayed away as it was a competitor to eBay. E-commerce companies previously did not want to team up with PayPal because doing so would only fund the growth of rival eBay.
An independent PayPal will also be more flexible in its decisions to aggressively challenge rivals such as the new Apple Pay. PayPal could also quickly become an attractive takeover target for huge companies such as Google, Microsoft, Visa and Mastercard.
