EBay has decided that Carl Icahn was right after all, and said on Tuesday that it would spin off PayPal into an independent company, a move it until now roundly opposed. The company says now is the time to split because PayPal does a decreasing proportion of its business through eBay. Currently 30 percent of PayPal’s business comes through the e-commerce site, and PayPal’s non-eBay business is growing three times as fast.
By splitting up, both companies can focus on what they’re good at, says eBay chief executive John Donahoe. He quickly adds that neither is for sale. But that doesn’t mean that there won’t be companies interested in buying either eBay, PayPal, or both. It’s possible that both companies would be more valuable as part of a larger company than they’ll be on their own.
So, let’s do the thought experiment. Who would buy them? PayPal’s payment platform, with 150 million users, seems attractive to payment networks eager to have a firmer grip on e-commerce and mobile payments. If Visa, Mastercard, or American Express were to purchase the company—note: American Express executive Dan Schulman was named president of PayPal and CEO designate—they could subtly tilt customers towards their own networks without changing the service, simply by making their own network the default payment method. Another potential buyer could be Google, who is likely feeling pressured by the introduction of Apple Pay to jumpstart its struggling mobile wallet business.
PayPal wouldn’t be cheap, though. The split is likely to value the payments business at $47 billion, according to Bloomberg Industries, or about 31 times what eBay bought it for in 2002.
There’s only one obvious suitor for eBay. “There wasn’t really a natural buyer for eBay up until about a week ago,” says Gil Luria, an analyst at Wedbush Securities. “Now there’s a heavily capitalized, cash rich, fast growing company with ambitions of getting into the west that could easily, easily buy it.”
Alibaba’s initial public offering has left it with a huge cash hoard, and Jack Ma has proven to have an acquisitive streak. One of the main concerns during the company’s road show was whether the company was buying too many other businesses. While you can question the wisdom of an e-commerce giant buying a stake in a soccer team, an eBay purchase would be a logical way for Alibaba to get into the American market (and would remove a major competitor in the process.)
EBay would also be expensive. Its market value is now just under $70 billion, with PayPal included. If PayPal really just walks away with $47 billion of that value the remaining company is still worth $23 billion. As of 10 am, EBay’s stock was up about seven percent since the announcement, increasing the value of Icahn’s 2.5 percent stake by over $110 million.
