Does Icahn's PayPal Spin Off Proposal Make Sense?

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Jan. 24 (Bloomberg) -- Yammer Founder and CEO David Sacks discusses the idea of splitting PayPal off from eBay. He speaks on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

What do you think of this idea?

This is an idea we have been talking about for years.

You can see wall street having the same conversation.

I think this is driven by reality.

When we sold paypal to ebay, ebay transactions were two thirds or more of paypal.

Today they are one third or less of paypal's volume.

And decreasing rapidly.

The non-ebay portion is growing much, much faster than the ebay portion.

To me, this is not a question of if but when.

In the sense that its trendlines keep going the way they're going, ebay transactions will eventually be a single digit percentage of volume.

It is always hard to specify the benefits of focus, but all of the companies in silicon valley i think are seeing the benefits of focus.

There is a fundamental difference between a company that is trying to sell retail and merchandising.

Ebay is trying to get people to the site and find the goods they are looking for.

The questions paypal is trying to solve our how do you keep money in the paypal system.

How do you prevent fraud.

These are two different types of products even though they do come together at the moment of purchase.

You think paypal should get more involved in things like financial services.

I think that paypal on its own could be a hundred billion dollar plus financial services powerhouse.

One key thing to understand about paypal's business is that all of the profit comes from transactions funded by a paypal balance.

The credit card funded transactions roughly break even.

It is critical for people to keep money in the system.

Paypal has grown tremendously, more than we expected, over the last decade.

But if you look at the funding mix, which is the percentage of transactions funded in a low- cost way, that has not kept up.

I think there are a lot of different ways that paypal could improve that.

You can offer check writing on paypal accounts.

You can offer direct deposit to paypal accounts.

And you can pay interest on paypal accounts, which is something we actually did.

It is a future that ebay took away.

Let's talk about that.

What kind of innovation do you think there has been a paypal since going under the ebay umbrella?

The interest i referred to -- we were paying the highest rate of interest in the industry on paypal balances.

It might be a regulatory reason.

The last thing ebay once is to be regulated.

I think there would be more regulatory flexibility of paypal was spun out into its own entity.

It certainly things that -- seems that the last thing ebay once is to spin off paypal.

This is the crown jewel.

This is where growth is coming from.

Where would this leave ebay?

The question is would it increase shareholder value to separate these two?

Ebay would be more focused on its own problems if it did not have this crutch to rely on.

Over the past 10 years, if you did not have this fast growth business bringing up the average, i think ebay might have had to focus a lot sooner on its growth.

Certainly, companies like amazon or aly baba have not the same types of growth problems.

I think by separating them, you actually forced both companies to focus on their own issues.

Who should run paypal if it is spun off?

To me, that is a secondary question.

I don't know exactly the details of carl icahn's proposal, but one of the things you have to do is have a business relationship between the two companies.

There are a number of legitimate business synergies, but i think all of those things can be captured through the right type of business instrument.

Obviously, there would be major shareholder spin outs, so their incentives would be aligned.

No hey pal founders are involved in paypal anymore.

Would they come back?

Look at their board.

There is not one person who was involved in the start of paypal on that board.

We all know that the companies that do the best long-term are the ones that keep their founders involved, especially when you have founders and leaders and business people of the quality of elon musk.

Why aren't these people on the board?

We have seen yahoo!, apple, ebay and paypal take a larger interest.

You say it is not a matter of if, but when, how ugly is a going to be on the way there?

I would classify the benefits of spinning it out.

Obviously, you have to figure out some of the details, but given the potential value that could be unlocked, i think it could be a worthwhile exercise.

Do the founders want to go back?

Do they want to be on the board?

I will give them a call right after this and ask them.

I think they all feel paypal is an important company.

Is there a sense the paypal stalled when it went over to ebay?

I don't think anybody thought it would make us more focused or innovative, but we had a real dependency on that -- at that point on ebay transactions that no longer really exists.

12 years ago when we sold the company, ebay had basically declared war on us.

But now it is a salient company.

This is something we will continue to watch.

This text has been automatically generated. It may not be 100% accurate.

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