In a dramatic about-face, eBay last week announced it would spin off its payment company, PayPal. The move was seen as giving in to mounting pressure from activist investor Carl Icahn, though Icahn had actually let up in recent months.
The split, observers say, likely has as much to do with the promise of a new era of payments technology, in part ushered in by the anticipation of Apple Pay, as with Icahn's storm of investor activism.
Apart, each company may have a better chance of pursuing growth than what they would have achieved together, observers say. So what’s next?
eBay a takeover target
Left to its own devices, eBay doesn't hold as strong a position as its payments company. The marketplace is seen as a “secondary” retailer, where people go to find used items or last season’s cast-offs, says senior research analyst Gene Munster of investment bank Piper Jaffray. The company is also not well used among consumers under 30, Munster says, and is ripe for improvements to its brand and to marketing efforts.
Speculation began almost immediately about which companies might swoop in to acquire PayPal or eBay once they're separated. But, there are serious tax implications that could stave off any kind of takeover immediately. Still, although the split hasn’t even occurred yet, it’s like a high profile divorce, with suitors already hovering in the wings. That's because there is so much potential seen in both companies, especially PayPal — and especially apart.
Indeed, eBay’s position in particular makes it an attractive takeover target, perhaps, some say, by Chinese retail giant Alibaba, which is loaded with cash after its blockbuster initial public offering in September. EBay, for one thing, would give Alibaba the presence in the U.S. the company has long said it wants.
PayPal better alone
Carl Icahn’s reason for urging the PayPal split had more to do with modern “corporate raidership” activist hedge fund tactics designed to maximize shareholder profits than with sober corporate governance.
But his insistence that PayPal would be better on its own suddenly seems very much true as the mobile payments sector revs up. While Apple and a host of other companies are on the cutting edge of mobile technologies, PayPal has an advantage few of them do: As of Q1 this year, PayPal has more than 148.4 million active accounts worldwide. Free from its parent, the company has even more potential.
While consumers have been reluctant to adopt contactless payments in general and mobile payments in particular, PayPal already has connections with millions of consumers that have long trusted the company with their credit cards, their bank accounts, and their payments.
PayPal a takeover target
PayPal could be an attractive acquisition target, too. Google, Amazon, Alibaba, and others have been mentioned in various speculative press accounts as possible suitors. A Google buy especially makes sense to many because the company is working so hard to move its Google Wallet along and because it could afford a large purchase.
No one is really expecting much takeover action any time soon though. For one thing, eBay and PayPal still have to complete their split.
But Carl Icahn is already making noise about how the payments industry needs consolidation — something he said in the very statement he released praising the corporate cleft for which he’d so long advocated.
“It also continues to be my belief that the payments industry, of which PayPal is an important part, must be consolidated – either through acquisitions made by PayPal or a merger between PayPal and another strong player in the industry,” he wrote.
And it’s clear that PayPal on its own lends that much more mystery to what the near future of payments will be.