EBay will spin off PayPal, giving in to Carl Icahn

Online marketplace EBay Inc. is bowing to investor pressure by spinning off its payment business PayPal into a separate publicly-traded company by 2015.

Wall Street cheered the news Tuesday and pushed up shares of EBay by 6.8% to $56.24 in morning trading.

The move is a sharp reversal for the San Jose company, which had spent months fighting activist shareholder Carl Icahn, who had argued both businesses would benefit from a split.

John Donahoe, chief executive of EBay, said a strategic review concluded that keeping EBay and PayPal together was becoming “less advantageous.�

“The industry landscape is changing, and each business faces different competitive opportunities and challenges,� he said in a statement.

Earlier this year, EBay and Icahn became embroiled in a months-long public spat after the investor accused two board members of conflicts of interest and said the company failed to get the full value for Skype when the video chat service was sold. Icahn also submitted a proposal to separate PayPal.

EBay argued that keeping EBay and PayPal combined was in the best interest of shareholders. Donahoe in March said a spinoff was “not a good idea.�

A month later, though, the two sides reached a truce. Icahn withdrew his bid to separate the PayPal business and also pulled back the names of two nominees for the board. The company appointed CVS board chairman David Dorman as an independent director.

“Over the last week, I have had a number of conversations with John [Donahoe],� Icahn said in April. “We both strongly believe in the great potential of eBay and PayPal, and I have found a number of his ideas to be extremely compelling. However, I continue to believe that eBay would benefit from the separation of PayPal at some point in the near future and intend to continue to press my case through confidential discussions with the company.�

On Tuesday, Donahoe and Bob Swan, EBay’s chief financial officer, both said they will step down after the separation is completed. Neither Donahoe nor Swan will hold executive management positions at the two companies, although they may be board members.

Twitter: @ShanLi