EBay To Sell Off PayPal: No, Not Doing It Because Of Icahn, No Siree!
EBay has just announced that it’s to sell off PayPal. All of which comes as something of an amusement as the company has been screaming loudly for ages now that of course it is not going to do any such thing. The reason being that a hedge fund investor (he prefers to call himself an “active” investor) has been pushing the company to do this. So, of course, management has been shouting “No!” for no one wants to be told what to do by outsiders. Especially when it turns out he’s right and you change your mind:
EBay said on Tuesday that it would spin off its PayPal payments unit into a separate publicly traded company, taking a step the activist hedge fund magnate Carl C. Icahn first demanded nine months ago.
The move will cleave eBay almost in half, separating it from the payments processor it acquired 12 years ago and built into a giant that generates almost half of the company’s revenue.
For nine months that management has been saying that Icahn is crazy to be demanding such a thing. And now they’re saying he’s been right all along.
As to why the plan might make sense: it’s hugely expensive to set up an electronic payments processing operation. Not because the code is difficult but because the bureaucratic regulations about money laundering and so on are so fearsomely complex. Meaning that if you’ve got one already then there’s a great opportunity to get other people to use that system you’ve already got. But, if you’re tied into one auction house or online retailer then people who own other such companies will be extremely hesitant to adopt your payment method (it’s notable that Amazon doesn’t take PayPal, in part because it’s owne4d by EBay). Thus divorce the payments processor from the auction house and each could be worth more alone.
Yet Mr. Icahn succeeded in the long run. In an interview, Mr. Donahoe acknowledged that eBay was following the strategy Mr. Icahn had recommended and that the company had vocally rejected.
We “got to the same place that Carl said early on,” he said.
But he contended the company arrived at its conclusion through “a deliberate process,” and not by reacting to outside pressure.
Yeah, yeah, sure you did, sure you did.