Icahn drops proposal for PayPal-eBay separation, board welcomes shift

Activist investor Carl Icahn had dropped his proposal for separation of eBay Inc from its PayPal payments unit, a move welcomed by the online marketplace.

Icahn acquired a stake in eBay in January and started pushing for a split, but proposed instead yesterday proposed an IPO for 20-per cent of PayPal.

Even as it rejected the investor's initial proposal, eBay reiterated that the businesses needed to remain together, while praising Icahn's shift in tone.

John Donahoe, eBay's chief executive officer, had stepped up his defense of the company, as he sought advice of technology industry peers and met media and institutional investors to argue that PayPal belonged with eBay . According to a statement by the company yesterday, eBay regularly reviewed the best course of action for the payments unit.

''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 and Icahn had been sizing each other up since the San Jose, California-based company first revealed that Icahn had acquired a stake in the web's largest online marketplace.

The clash escalated recently, with the activist investor launching an attack on eBay's corporate governance. He also went on to single out directors as targets.

According to Icahn, a partial IPO of PayPal would result in two highly-focused and dedicated companies that would enhance shareholder value.

He added, the move would also enable eBay to have commercial partnership with PayPal, and eBay, with the remainder stake, could retain synergies with PayPal.

He further defended his proposal as apart from PayPal, there did not exist a global payment processing solution competent enough to service eBay's users.

The past five years had seen PayPal and eBay generate a 441-per cent increase in share price for investors. eBay said being together was the best path to sustainable shareholder value.

Icahn had also cast aspersions on eBay's directors Marc Andreessen and Scott Cook, accusing them of having conflicts of interest. The company had however brushed the charges aside.

eBay stock closed at $57.30, yesterday down $0.54 or 0.93 per cent, on a volume of 6.4 million shares on the Nasdaq.