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Icahn calls for eBay to spin off PayPal

Article By: ,  Financial Analyst
January 23, 2014 10:15 AM

Investor Carl Icahn has called for internet auction firm eBay to spin off its subsidiary PayPal, which handles online payments for the company.

Mr Icahn, who recently bought a 0.8 per cent stake in eBay, stated that separating PayPal should be seen as a "no-brainer" by the firm as it would increase its value as a result.

In a statement, eBay revealed that it has previously held discussions over going through such a move, but does not think this is the best way to "maximise shareholder revenue".

Mr Icahn is well known in the investment world for buying stakes in companies then making recommendations for how they should be run in public. As well as calling for eBay to spin off PayPal, the investor also wants two of his employees to be added to the board of eBay.

"PayPal is able to leverage the company's technology capabilities, commerce platforms and relationships with retailers, brands and large merchants worldwide," eBay said in a statement.

"Payment is part of commerce, and as part of eBay, PayPal drives commerce innovation in payments at a global scale, creating value for consumers, merchants and shareholders."

Stocks soar

Investors responded strongly to the proposal and the share price of eBay rose by as much as 12 per cent on the back of the comments that were made by Mr Icahn.

Colin Gillis, an analyst with BGC Partners, told BBC News that it is likely there will now be a battle between Mr Icahn and eBay over the future of the company.

He said: "One of the reasons for that is because for commerce and payments, you need to remove as much friction from those two systems as possible. If you separate it out, you put more friction between them."

The last decade has seen eBay become one of the dominant forces of online retailing and as well as allowing individuals to sell their used items and homemade goods on the site, many major companies now have their own outlet stores on the site.

PayPal was bought by eBay back in 2002 for $1.5 billion (£905 million) and has long been the internet's most dominant method of making online payments.

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