EBay Rises on Report of Possible PayPal Spinoff Next Year

Aug 21, 2014 5:50 pm ET

(Updates with status of discussions in second paragraph.)

Aug. 21 (Bloomberg) -- EBay Inc. shares climbed after The Information reported the company could spin off its payment unit as soon as next year.

The world’s biggest online marketplace has been telling potential candidates for the top position at PayPal that it’s considering spinning off the division as soon as next year, The Information said in a report today. EBay hasn’t begun talking to candidates about the job of PayPal chief, said a person with knowledge of the matter said, who asked not to be identified because the matter is private.

The shares of EBay rose 4.7 percent to $55.89 at the close in New York, leaving them up 1.9 percent this year. The report follows activist shareholder Carl Icahn’s campaign earlier this year for EBay to spin off PayPal. The parties settled in April and EBay agreed to add an independent director. The San Jose, California-based company also took a tax charge to let it repatriate foreign earnings, although it hasn’t specified any plans for the money.

“The EBay Inc. board and management team remain focused on maximizing shareholder value,” Amanda Miller, a spokeswoman for EBay, said in an e-mailed statement. “As we discussed during proxy season and in our second-quarter financial results call, the board will continue to assess all alternatives to create that long-term value and to enhance the growth and competitive positions of both EBay and PayPal. This position has not changed.”

The payments unit is fueling growth at EBay, with PayPal revenue up 20 percent in the latest quarter, compared with a 9 percent gain in the marketplaces business.

Cash Plan

David Marcus left as PayPal’s chief to join Facebook Inc. earlier this year. EBay has been telling potential recruits for the top PayPal position that it may spin off the business as soon as next year, The Information reported, citing two unidentified sources.

EBay has looked at different ways it might use its cash. The online marketplace in April said it’s taking a $3 billion tax charge to potentially return $9 billion in profits to the U.S. The money could be used for stock buybacks or acquisitions, executives said at the time.

“We have more flexibility to use that offshore cash domestically if we -- when we need it,” EBay Chief Financial Officer Robert Swan said last month on a call with analysts, adding that he isn’t contemplating a large U.S. acquisition.

EBay Chief Executive Officer John Donahoe has repeatedly said PayPal and the marketplaces business are stronger together than separate.

Two Businesses

“We are blessed with two great businesses and will continue to aggressively drive growth for PayPal and EBay,” Donahoe said during a call with analysts last month. “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.”

Robert Peck, an analyst at Suntrust Robinson Humphrey Inc., said that executives’ comments on conference calls have already signaled the possibility of a split, and that the rise in EBay’s share price surprised him.

“I thought they were being upfront about exploring the idea,” he wrote in an e-mail. “It doesn’t change a lot of the core challenges: slowing marketplace growth and increased payments competition.”