Ebay CEO John Donahoe Talks About The PayPal Split And Future Of Two Companies

Today eBay announced it would spin-off its fast-growing PayPal division in 2015. The decision to separate PayPal from eBay’s marketplace operations is a drastic reversal for eBay, which this February fended off an aggressive attack from activist investor Carl Icahn who called the two companies to split.

This afternoon I had a chance to speak to eBay CEO John Donahoe. Below is an edited Q&A covering why he and the board decided to change their stance on PayPal, why they decided to do it now and where he envisions each company heading.

FORBES: You spent a good part of this year fighting off Carl Icahn’s demands to split up Ebay and PayPal–why the split now?

John Donahoe: We wanted to do this on our on time frame and through our own regular process. We’ve run the same strategic planning process for the last 7 years and that process lead to this decision. This was not reacting to any short term impetuous in any way. We looked out 3 to 5 years to analyze how the payment landscape, competitive landscape and technology landscape would change. We looked at our alternatives and how we could best position the company. The competitive environment is more dynamic than ever before. It creates exciting opportunities and we thought we could capitalize on those opportunities more competitively and aggressively as two separate companies.
Ebay CEO John Donahoe



F: Did the Alibaba IPO and announcement of Apple Pay have any influence on the timing of the PayPal spin-off?

JD: We made this decision before either of those things happen. Apple and Alipay (Alibaba’s payment arm) are just evidence supporting our thesis that the pace of change is accelerating.

F: Where do you see PayPal a year from now?

JD: Paypal is in a position to really be the link between the technology ecosystem and the payment industry. Our goal, and we started this with the acquisition of Braintree, is to extend PayPal’s reach across all technologies and do what I call the hard part of payments for them–and make the act of paying easier for consumers regardless of where they are.

F: Do you see PayPal getting into the banking game?

JD: We have a banking license in Europe and a payment license in 29 countries, but I don’t envision getting a banking license in the U.S. because I don’t think it’s necessary for our strategy

F: Do you see either eBay or Paypal getting acquired by another company?

JD: We’re not doing this to set either business’s up for sale. Post separation, if you use current valuations you’ll have two very significant companies with market caps well above $30 billion each. We believe both can be independent winners in the future.

F: Does this change eBay’s business strategy?

JD: I wouldn’t call it a change in direction but a greater focus and clarity. Ebay has strong margins and cash flow and you took that cash flow and invested it in the faster growing parts of the portfolio, mainly PayPal. The nice thing about the spin-off is that it allows eBay to keep its own profits and reinvest it back in the businesses that will best to drives incremental growth and provide a more cohesive capital allocation. It will let eBay control its own destiny. The synergies between eBay and PayPal will be maintained by commercial agreements.

F: After a very public fight to keep eBay and PayPal together–what was it like changing your stance and splitting up the company?

JD: We had a strong commitment to do the right thing for our company. Our founder Pierre Omidyar–who still owns 10% of the company and is still chairman of the board– would expect nothing less than for us to do what’s right for the company for the long term. And that the commitment I’ve always had as CEO and what Meg Whitman did before me. You can’t worry about how others speculate about it from the sidelines–we just have to do the right thing and that’s what we made this decision.

F: You said you’ll step down as CEO after the PayPal spin-off. What’s next after the deal is done?
JD: I thought the Ryder cup team could use some help… I haven’t given it any thought. I’m 200% focused on getting this done and I’ll continue to serve on the boards. I won’t’ worry about that until the time comes–I have my hands full until then.

Article by Steven Bertoni – Forbes Staff

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