The dramatic departure of PayPal President Scott Thompson to take the reins of the troubled Internet portal Yahoo! has thrown plans by PayPal parent eBay to spin its payment provider off as a separate company into confusion, reports Reuters.
The news drove eBay’s share price down by 3.8% since investors were apparently looking forward to a successful spin off as well as being rattled by eBay CEO John Donahoe’s admission that he was shocked by the news. PayPal started life as an independent company but was acquired by eBay in 2002 for $1.5 billion soon after going public.
Since his appointment in 2008, Scott Thompson saw PayPal’s business volume expand by 26% annually, now handling annual transactions of over $120 billion. Because of its high growth potential, PayPal is now perceived to account for approximately half of the $40 billion market valuation of its parent.
Thus, a spin-off could generate a large amount of value for eBay shareholders. Ironically, according to Bill Smead of Smead Capital Management, which owns eBay shares, if PayPal had already been spun off as an independent company its CEO “would have been better incentivized [to stay put] when the head-hunter came calling.” EBay is now in the position of deciding whether to appoint an existing PayPal executive to the position of President.