Separation by numbers: eBay publishes roadmap for its PayPal spinoff

By Michael Carney , written on March 13, 2015

From The News Desk

Despite eBay announcing plans to spin off its prized payment subsidiary PayPal more than five months ago, the companies remain very much united today. So is the glacial pace of adjusting course on a massive battleship. But with separation day fast-approaching, eBay has published a roadmap outlining what to expect in the weeks and months ahead.

The document offers a nine-step process which ends with PayPal’s shares trading publicly, independent of eBay. Naturally, the process includes plenty of legal wrangling, including requirements for approval from the SEC, FTC, and other regulatory bodies.

Naturally, any transaction of this magnitude isn’t done until the final ink hits the paper. In this case, both companies represent likely acquisition targets, an outcome that could present itself either before or after a spinoff is completed. At such a time, eBay’s board of directors would be forced to determine which path is in the best interest of the company’s shareholders.

These shareholders will be incentivized to see the separation through and to see a fair market value established for PayPal through the liquid trading of its shares. The same could be said for the newly slimmed down eBay, which will see public investors grapple with questions of how much the marketplace business is worth independent of its payments and enterprise business units. Any potential acquirers, however, may prefer to swoop in an negotiate a deal before either stock trades a single share.

As eBay outlined in a Form 10 registration filed in January for the newly-formed PayPal holding, the two companies must still establish operating agreements and arms-length business agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property matters agreement, to govern their dealings as independent entities.

Speaking to PwC recently as part of its 2015 CEO Survey campaign, outgoing eBay chairman and CEO John Donahoe addressed the challenges ahead for both companies, post separation:

Our challenge is that we need to continue disrupting ourselves before someone disrupts us. The competition that I worry most about in many cases hasn’t been created yet. It’s a new company, a new technology, a new business model that looks at this blurring between online and offline, looks at this enormous opportunity where technology can enhance a consumer’s experience of buying and paying, and then come up with something new. So we’re investing a lot in innovation, we’re experimenting and trying to learn from our experiences, and it’s an enormously exciting time. I can’t imagine a more exciting time.
He later added:
...the pace of innovation is accelerating, and I think you’re going to see more change in the next three to five years than you’ve seen in the last five to ten, potentially. ... We compete in the world of commerce, in the world of payments. When you think of the world of physical retail, there hasn’t been a tremendous amount of change in the last 20 or 30 years. If you walk into a physical retailer today and you shop, in many ways it’s similar to the way it was 20 or 30 years ago. The merchandise may be different, the layout may be a little different, but the core experience is very much the same, and similarly, how you pay in the physical world, by swiping your credit card or paying with cash is also the same. I think over the next five years, you’re going to see technology fundamentally change how a consumer can shop and pay in the physical world.
These industry transformations are ones that are inevitable, whether eBay and PayPal are independent, or still united. The only difference, at this stage, is the speed at which each unit can move and the existence or absence of shared objectives when making decisions about where and how to drive innovation.

For example, absent its close ties to PayPal, eBay may choose to partner with a PayPal competitor like Apple Pay or Google Wallet in an effort to simplify mobile checkout experiences for its consumers. By the same token, PayPal may wish to broaden its ecommerce footprint through partnerships with eBay competitors – Alibaba comes to mind. We've already seen PayPal become more acquisitive in the short time since the spin-off plans were announced.

Soon enough, the world should get to see PayPal and eBay navigate these decisions completely free of any encumbrances from one another. If nothing else, it will certainly be interesting to watch. Below is the separation roadmap outlining all that needs to happen between today and this high-octane future.