Recently, Carl Icahn told CNBC in an interview that eBay has the worst corporate governance he’s ever seen, and that’s a symptom of how badly American companies are run. The statement was given in lieu of the ongoing debate between Carl and eBay regarding the split of PayPal business from the company.
During eBay’s 4Q13 earnings call, Icahn has proposed to split the PayPal business from the company. However, the offer was rejected by the eBay Inc.’s directors on board stating that it was not a new idea and the board had evaluated the option but decided to keep the businesses together.
Why Icahn demands split?
Icahn, who holds a 2.15 percent stake in the company, believes that the two companies were better off together. In his open letter to shareholders, he pointed out that the current strategic guidance of the company is not good and is full of interference from the management. “We believe corporate governance at eBay is dysfunctional. Let’s end this charade.”
The letter also states that two of the board members, Marc Andreessen and Scott Cook are fulfilling their personal interests in the company.
Also, in an interview with USA Today, he put forward PayPal as an important acquisition candidate, looking at the growing mobile payments business. As said, if the separation happens, than PayPal would be worth considerably more than USD 38.2 billion as a takeover target.
What eBay believes?
In his latest blog post, eBay’s CEO and President, John Donahoe, has stated clearly that they have been successful exactly because PayPal and eBay are together. “No other payments competitor has achieved PayPal’s success – because no other competitor has a commerce platform like eBay. We are seeing a convergence of commerce and payments businesses, not a separation.”
eBay acquired PayPal in 2002 for USD 1.5 billion and since then it has claimed to helped fuel its growth off of eBay. As said by John, in 2010 PayPal generated USD 600 million of mobile payments volume – 80 percent of which came from eBay mobile apps. In 2013, three short years later, PayPal’s mobile payment volume grew to USD 27 billion both on and off eBay.
In 2013, it holds revenues at USD 6.6 billion, close to USD 8.3 billion clocked by eBay. Also, in the last two years, Paypal has maintained an year on year growth of above 22%.
He also added further that the company represents approximately one-third of PayPal’s revenue and well over half of its profits. “eBay continues to generate 30 percent of Paypal’s new users – at zero acquisition cost. And in 2013, eBay was a significant contributor to PayPal’s profit growth.”
What the world is saying?
Although, most of the analysts are of view that PayPal should stick with eBay, Former Paypal Executive, David Sacks, supports Icahn call.
“When PayPal sold to eBay, eBay’s transactions were roughly two-thirds or more of PayPal’s volume. But today, eBay is a third or less of PayPal’s volume, and it’s decreasing quite a bit. As of now, the non-eBay portion is growing a lot faster than the eBay portion.” said David to Bloomberg in an interview.
The debate is still on. Here are some mixed responses:
I have 15 reasons to split Paypal from eBay: one for each year I’ve used Paypal in which the experience has not changed. /cc @davemcclure
— Patrick McKenzie (@patio11) February 28, 2014
— Gordon Vaughan (@aeroG) February 28, 2014
No reason for $EBAY to split Paypal. They should just focus on being the next Alibaba.
— ivanhoff (@ivanhoff) February 24, 2014
— jason (@Jason) January 25, 2014
The payments world, currently is busy, unplugging the debate behind split of eBay from Paypal. We have also recently seen players like Flipkart and Snapdeal launching their own payment gateways to take a step ahead in the Ecommerce world. Certainly, Paypal is an important part of eBay and it would impact both in one or the other way. So where would this debate lead to?
(Image Credit: Forbes)
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