Carl Icahn is at it again.
The billionaire corporate raider turned activist investor wants eBay to spin off its PayPal unit, the giant online marketplace disclosed on Wednesday. It’s not hard to see why. PayPal is eBay’s fastest-growing business division and accounts for an accelerating amount of the company’s revenue. Icahn thinks an independent PayPal will be able to grow even faster as it rides the wave of the online-payments boom.
PayPal parent company eBay said its board considered Icahn’s proposal to spin off the payments service and rejected it, setting the stage for a potential showdown between the company and the 77-year-old investor.
Some Wall Street analysts weren’t buying what Icahn was selling. Morgan Stanley tech analyst Scott Devitt says that keeping PayPal combined with eBay will ultimately produce the best value for shareholders. “We believe that PayPal is the best performing asset, but it owes much of this to its integration with eBay’s other businesses (marketplace and enterprises),” Devitt wrote in a note to clients Thursday.
For his part, Icahn called a potential PayPal spinoff “a no-brainer,” in an interview with Bloomberg TV, adding that PayPal is a “great growth company” that would benefit from having a separate management team. “There’s no reason they should be together at this point, in our opinion,” Icahn said. “I think the multiple would go up dramatically, and the health of the company would be better.”
In 2013, revenue at eBay’s payments division, which includes PayPal, increased by 19%, while the company’s marketplaces-division revenue increased by 12% and its enterprise-division revenue increased by 3%. In 2013, PayPal, which now has 143 million users worldwide, handled a whopping $180 billion worth of payments.
It’s just the latest aggressive move by Icahn, a bare-knuckled business brawler who has recently targeted Netflix, Dell and Apple. The proposal by Icahn, who owns 0.82% of eBay, helped send the auction giant’s shares as much as 9% higher in after-hours trading on Wednesday. Icahn also wants to place two of his own employees on eBay’s board of directors.
The idea of spinning off PayPal from eBay has been floated several times in recent years. For PayPal, part of the logic for a spinoff is that some of eBay’s rivals may be more willing to use the payments service if it weren’t embedded inside of a competitor. “Sometimes PayPal’s attachment to eBay can be a deterrent for eBay’s indirect competitors,” RJ Hottovy, an equity analyst at Morningstar, told Reuters in 2012. “That’s the main reason why PayPal should be separated.”
In statement, eBay indicated that while it “welcomes the opportunity to listen to the perspective of all of its shareholders, including Mr. Icahn,” it is not planning to follow his advice. “[The] board of directors has concluded that the company and its shareholders are best served by the current strategic direction of the company and does not believe that breaking up the company is the best way to maximize shareholder value,” eBay said.
In a company blog post, PayPal said it believes it makes sense for the company to remain part of eBay. “PayPal is successful precisely because we are part of eBay Inc., not in spite of it,” the company wrote, adding that “eBay Inc. has helped drive our success for more than a decade, and we continue to believe we’re far more valuable together.”