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eBay To Spin Off PayPal
In 2002, eBay bought PayPal for $1.5 billion in stock. Nowadays, PayPal's yearly revenues exceed $7 billion, and investors are worried that eBay and PayPal together are too big to compete effectively. (They're also too big to be acquired, which is on their minds after the ludicrously successful Alibaba IPO.) To solve that problem, eBay today announced it will be spinning off PayPal in 2015, creating two separate publicly traded companies. eBay's current CEO is stepping down, and each of the companies will have a new CEO. "As part of the separation, eBay and PayPal will sign arm’s length commercial operating agreements to work together, with payments on both sides for various referrals and services. That’s no surprise since about 30 percent of PayPal’s business is still on eBay, although that is down from 50 percent only a few years ago."
in the admittedly unlikely but highly desirable eventuality of PayPal going down in flames.
'The Economy' is a giant Ponzi scheme whose most pitiable suckers are the youngest among us and the yet-unborn.
Then eBay can become a bank. In exchange for more regulation, they get to do lending and can borrow from the Fed.
are you familiar with the lone ninja paradox? the lone ninja is a force of silent death that cannot be stopped. He can climb buildings, sneak past guards, assassinate emperors, and accomplish any number of impossible tasks. But when you gather a bunch of ninjas into a large clan, they are essentially incompetent and will be defeated by pretty much any enemy, especially a lone ninja.
hence the comment in the first sentence of the summary, "too big to compete effectively".
First, it has nothing to do with Alibaba's IPO and everything to do with Apple's new one touch payment.
Second, being opposed to hostile takeover is a bad thing. I will put it simply, if you owned some stock of eBay, why would you want to discourage somebody offering you a price that is higher than it is trading for today? I mean, yes, one could insert poison pills and stuff to damage and tarnish your stock, decreasing it's value so people would stay away, but once again why?
Most of the time it is managers, not the owners, who are opposed to hostile takeover. They face a bum choice. They could work hard to keep the stock price. Or they could slack off, be bought up, and then be fired. Of course they have pay packages in the millions so I don't feel too sorry for them.
PayPal can't go after other auction/retail business because it's part of eBay, eBay can't use other payment systems because it owns PayPal. By splitting them apart there's more room for both of them to grow. Kind of a reverse gestalt.
For example, if eBay no longer owns PayPal (or has any connection to it) they no longer have the incentive to force people to accept it (or like they did in Australia before they got in trouble for it, make PayPal the only method of payment).
Also maybe this will impact the ability of eBay to do certain things they do now like holding money from an eBay auction instead of releasing it to the seller straight away.
Pardon my ignorance but i don't understand the term spin off in this sense. Ebay owns paypal now but wont after this is that correct? what compensation does ebay and its stock holders get for spinning off paypal. If they are not selling PayPal how do they make money from getting rid of it. If they are not making money why would they let this huge profitable part of the business go for free. can someone explain how the spin off works.
Its stock holders get an equal number of shares in the new company. So if you own 10 shares of ebay, you will now own 10 shares of ebay and 10 shares of paypal. You can then buy and sell each one independently of the other. For some companies, the whole company is greater than the sum of its parts. In this case, the powers that be (the board members), have decided that each one would be worth more on its own than bundled together.
This could be because they are interested in acquisition. It could be they are afraid want to take risks with one or both of them and are afraid of one hurting the other. And it could be for another reason entirely.
We don't know because the board has not told us the reason. However, they did manage to use quite a few words to not tell us thre reason:
In its recently completed review, the board concluded:
A changing competitive landscape creates enormous opportunities for eBay and PayPal; separation will create sharper strategic focus and better position each business to capitalize on those growth opportunities as independent companies. The pace of industry change and innovation in commerce and payments requires maximum flexibility to stay competitive and drive global leadership.
The benefits of the existing relationships between eBay and PayPal will naturally decline over time and can be optimized in arm's length operating agreements between the two entities. Arm's length operating agreements can formalize the existing relationships between the two companies and capture ongoing synergies.
This is the best path for delivering sustainable shareholder value. eBay is a leading global commerce platform that has benefited from PayPal, and PayPal is a strong, rapidly growing global payments leader because it has been part of eBay. But beyond 2015, eBay and PayPal will each benefit more and create greater value from the strategic focus, speed, flexibility and agility that come with being independent publicly traded companies.