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Shares of eBay (NASDAQ:EBAY) opened at 56.66 today, up 7.6% from yesterday’s close at 52.66, reaching a high of 59.20 before mid-morning, itself an increase of 12.4%. The stimulus for this surge was, clearly, the announcement that eBay and PayPal plan to split into independently publicly traded companies in 2015.
The report says that the decision followed “a strategic review of the company’s growth strategies and structure.” That review indicated that,”Keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively.”
The Board’s Findings
After several months of strategic review, the board reached three conclusions which, individually, indicate the spin-off to be a good thing and, separately, emphasize that it should be done.
- Focus: Because the broader landscape of technology and online business is changing so rapidly, separating the companies will allow each enterprise to focus on its own, specific services. Improved focus should mean improved ability to capitalize on challenges and change.
- Synergies: Some synergies disappear when companies operate together. This is why the synergies that are often spoken of prior to M&As never become realities. The M&A process inherently focuses on eliminating redundancies first, which oftentimes causes companies to fail to leverage the pre-existing, synergistic possibilities either in a timely fashion, or at all. Recognizing that the power of the synergies of two companies operating at arms length is often greater than when blended into one may be the best use of the term that I have ever noted.
- Value: While recognizing the value that eBay and PayPal have benefited from operating as one entity, the board concluded that, divided, “Each benefit more and create greater value from the strategic focus, speed, flexibility and agility that come with being independent publicly traded companies.”
What’s Icahn Got to do with It?
If you dig into this story even a tiny bit more, Carl Icahn’s name is going to come up. Let me warn you right now, pursuing that trail will lead you down a rabbit hole that, whilst mildly interesting, has no meaningful relationship to the facts as they are. Let me help you avoid going into that hole.
Nine months ago, Icahn, who owns in excess of 30 million shares and who had, at the time, two representatives on the board, suggested splitting eBay and PayPal into two separate entities. Because some debate ensued and because the board did not ask, “How high?” when Icahn said, “Jump!” some reporters seized the opportunity to turn everyday, ordinary executive business dealings into prime time drama.
If we can agree that Carl Icahn is, in his own unique way, somewhat of a business genius, you will understand my point. Icahn has the ability to see the big picture, often not just more clearly in the now, but also all the way to the horizon and beyond. Most others, including the brightest executives, need more time to analyze in order to come up with what was already obvious to Mr. Icahn.
All that happened was that Carl Icahn saw it first. He had already studied the idea when he presented it. Since the board members had not thought of it theretofore, it was a new idea for them. Idea presented – idea scorned – idea studied – idea accepted. It’s really that simple. It happens in boardrooms all the time. In the end, all the great minds truly do think alike.
I’m not going to get caught up in the game of predicting what will happen as a result of spinning off PayPal, but I will say that I believe it is a good idea. And I can proudly say that Carl Icahn agrees with me.
