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The thinking behind eBay splitting with PayPal

Posted at 11:16 AM, Sep 30, 2014

In a major reverse in course, eBay is spinning off its PayPal business into a separate, publicly traded company next year.

EBay CEO John Donahoe said in a statement although the two companies had benefited from each other, "keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively."

The move is a seen as an about-face for eBay's board, which had firmly resisted calls to spin off PayPal.

The loudest call came from billionaire investor Carl Icahn. In a highly public feud earlier this year, he pressured eBay to split the companies as a way to increase value for shareholders.

The thinking was, PayPal  — the faster growing of the two — would demand a much higher valuation in the marketplace if it were independent of eBay. 

Icahn backed off his demand in April when he agreed to take a board member position. But Tuesday's news, as Fortune's John Kell puts it, is seen as basically "an admission that Icahn had been right all along."

The mobile payments business has become more competitive in recent months, with other companies like Apple and Google now on the scene.

To learn more about the reasoning behind the split, watch this Newsy video