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EBay, in reversal, spinning off PayPal

Attendees walk in front of an eBay and PayPal display area at the Mobile World Congress, the world’s largest mobile phone trade show, in Barcelona, Spain, in 2013. PayPal is splitting from eBay Inc. and will become a separate and publicly traded company in 2015. (Associated Press)
Attendees walk in front of an eBay and PayPal display area at the Mobile World Congress, the world’s largest mobile phone trade show, in Barcelona, Spain, in 2013. PayPal is splitting from eBay Inc. and will become a separate and publicly traded company in 2015. (Associated Press)
Associated Press

NEW YORK – PayPal’s impending split from longtime partner eBay Inc. will ratchet up its appeal to online retail competitors such as Amazon.com and give it the freedom to aggressively take on new mobile pay challenger Apple Pay. For eBay, the challenge will be how to drive revenue without its fastest-growing division.

The move marks a 180-degree turn for eBay Inc. CEO John Donahoe, who had been adamant in spurning activist investor Carl Icahn’s call months ago to spin off PayPal. Donahoe, who will step down after the split is finalized in the second half of next year, said he now agrees that it’s the right path for both companies. With the launch of Apple Pay next month expected to reshape the mobile payments industry, Icahn said he’s “happy” eBay came around, “perhaps a little later than they should have, but earlier than we expected.”

Investors were happy, too, sending eBay shares up more than 7 percent to close at $56.63 on Tuesday.

PayPal services $1 of every $6 spent online. It collects fees from more than 150 million users who use the online service to send money to other users and pay for goods and services in more than 200 markets. Acquired by eBay in 2002 for $1.3 billion, its partnership with the popular site helped expand PayPal’s reach worldwide. The service posted 20 percent revenue growth in the last quarter to $1.95 billion – representing nearly half of eBay’s total revenue.

PayPal also has staked a claim in the small but swiftly growing mobile payment arena, and is on track to process 1 billion mobile payments this year. It launched PayPal Here and acquired Braintree and its One Touch mobile payment service, which compete with players such as Square and Google Wallet.

So what might be PayPal’s first solo move?

Courting major eBay competitors such as Amazon.com Inc. and newly public Alibaba, which might be more likely to partner with PayPal now that it’s not married to a direct competitor, Cantor Fitzgerald analyst Youssef Squali said. The company also could be a takeover target. Squali notes that Google and Microsoft (not to mention Visa and Mastercard) have tried to build online payment platforms with varying degrees of success.

In a statement, Icahn asserted that PayPal either needs to buy other digital payment services or consider selling itself to another “strong player” to prepare for an industry shakeout that he believes will happen soon.

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