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A big story is the news this week is that Ebay is planning to spin-off PayPal into their own company. What are the advantages of such a move?

On one side, I see this as only weakening Ebay, as it now has substantially less product to offer directly. On the other side, I presume that the heads of each company will be synchronized (if not the same person(s)?), which begs the question of whats the point if nothing changes?

Ebay stocks went up 7.5% today, so investors seem to like this idea, but why?

  • Just my 2 cents, I don't think it makes sense in this case. Does Ebay need the cash to expand? In the long run, I feel that there will be a diminished value to shareholders. Good question though. – Pete B. Oct 1 '14 at 12:38
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Spinning off can make sense as a way to try to unlock the value of a subsidiary. Consider what used to be known as "Phillip Morris" that held both the Kraft brand of foods as well as a tobacco subsidiary. By spinning off Kraft, the new company wouldn't have the bad PR that the tobacco side would have as some mutual funds will avoid investing in companies involved in areas like tobacco, alcohol or firearms.

Look at the distinctions between Coca-Cola and Coca-Cola Bottling for another example of where a company has split itself so that each company can focus on things.

In the case of eBay and PayPal, could there be something for each company to focus that may reward the shareholders as chances are the spin-off would grant extra shares to the current holders which may mean the shares will get repriced but I'm not sure I understand how this is such a horrible thing if eBay has other growth opportunities to pursue.

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