Icahn Relents on Pushing EBay for PayPal Spinoff

Activist investor Carl Icahn is backing away from his proposal to separate EBay Inc. from its PayPal payments unit, a move welcomed by the online marketplace.

Icahn, who took a stake in EBay in January and began campaigning for a split, proposed yesterday an initial public offering for 20 percent of PayPal. EBay, which rejected Icahn’s original proposal, reiterated that the businesses should remain together, while praising Icahn’s shift in tone.

John Donahoe, EBay’s chief executive officer, has stepped up his defense of the company, seeking the advice of technology industry peers and meeting with media and institutional investors to argue that PayPal belongs with EBay. EBay regularly reviews the best course of action for the payments unit, the company said in a statement yesterday.

“A partial separation of PayPal is not a new idea, and we’re glad to see that Mr. Icahn now seems to agree that a full separation of PayPal is not a good idea,” EBay said. “But today, PayPal and EBay are better together.”

EBay has been sparring with Icahn since the San Jose, California-based company first revealed that Icahn had taken a stake in the Web’s largest online marketplace. The clash more recently took on a hostile tone as the activist investor attacked EBay’s corporate governance and singled out directors as targets.

Icahn has said the fast-growing PayPal unit should be unlocked from the slower-growing company and valued separately. An IPO for one-fifth of PayPal -- with the remainder staying with EBay -- would help it compete against rivals, attract new talent and free up stock that could be used for future acquisitions, he said.

Building Case

“Before the transaction is consummated the companies could enter into a long-term, commercially viable contract, preserving all synergies,” Icahn said. “This type of relationship is customary in partial IPOs and would be particularly important for EBay as currently, outside of PayPal, there does not exist a global payment processing solution competent enough to service EBay’s users.”

Before EBay, Icahn had targeted Apple Inc., pressuring the iPhone maker and CEO Tim Cook to buy back $50 billion worth of stock. Icahn dropped his campaign last month after the Cupertino, California-based company stepped up repurchases and a proxy advisory firm criticized the investor’s efforts as micromanagement.

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