Why Did EBay Spin Off Pay Pal?

E-Bay has decided to spin off Pay Pal into a separate company.  This article raises questions about the motivation for that decision.  Carl Icahn, a major shareholder in E-Bay, pushed E-Bay to make the spin off.  The CEO of E-Bay argued that the synergy between E-Bay and Pay Pal had strategic importance.  The board ultimately sided with Carl Icahn and the CEO will step down after the two businesses are separated.

There are two motivations for spinning off Pay Pal from E-Bay:  The strategic question is whether the two businesses are better off operating independent from each other.  Only time will provide the answer to that question.  The other question is whether the combined market capitalization of the independent firms will exceed the market cap of the combined firm.  That will depend upon how investors value the separate firms.  It is likely that the current E-Bay shareholders, like Carl Icahn, will benefit immediately from the spin off.  So will the Wall Street banks that are involved in the process. They have less interest in the long term viability of the firm than they do in what happens to the combined capitalization of the separated firms.  The decision to separate the firms is consistent with the mission of the corporation to place primary emphasis on promoting the interests of their shareholders.  Large investors, like Carl Icahn, and the Wall Street banks are very happy with the single focus of publically traded firms on increasing shareholder value.