Would EBay Breakup Spur Potential Merger?
E-commerce giant EBay plans to cut thousands of jobs and unload its enterprise unit that helps retailers manage their online shopping operations. The company has also reportedly planned to spin off its payments division, PayPal, from its core marketplace division in the second half of the year, making two standalone publicly traded companies. According to industry experts this may signal apotential merger fight after the breakup.
The e-commerce giant confirmed reports from last month that it would slash its workforce by 2,400 positions, or 7 percent. The jobs will be cut across the marketplace, payments and enterprise divisions, as per eBay’s fourth-quarter earnings report.
The announced moves are intended to give each business the ability to consider all their alternatives, including a sale, eBay Chief Executive Officer John Donahoe said. “No one knows what’s going happen down the road,” Donahoe told Reuters after eBay reported fourth-quarter earnings. “But each business will have the flexibility they need to do what they need to do to win.”
The restructuring comes ahead of the company’s pending spin-off of online payments service PayPal into a separate entity, say analysts. The company said it entered into a “standstill agreement” with Carl Icahn, its largest active shareholder, and appointed to its board Icahn Capital executive Jonathan Christodoro, which also calls for PayPal to adopt certain corporate governance provisions post spin-off. It also is adding two Wall Street bankers to its board, expanding the number of directors to 15.
Post the breakup, the eBay Marketplaces unit will tap the so-called “avid” shoppers hungry for a bargain. Its enterprise division, which advises companies on how to grow online, will strengthen its relationships with top retailers and brands.
The company has reported 10.12 percent rise in profit for the quarter ended Dec. 31, 2014. The company has earned $936 million, or $0.75 a share in the quarter, compared with $850 million, or $0.65 a share for the same period last year. Revenue during the quarter grew 8.63 percent to $4,921 million from $4,530 million in the previous year period.
News of the job cuts, potential sale of the Enterprise units and strong quarterly financial numbers sent eBay’s shares up about 2.5% in after-hours trading. Donahoe called 2014 “a year of unexpected events and distractions” in a statement. He was optimistic about PayPal’s results while promising better things for both that unit and what will remain of eBay. “EBay, while facing challenges, continues to be a great business and is focused on stabilizing performance and engaging its core customers,” he said.
“Looking forward to 2015, we will be simplifying organizational structures to focus the businesses and ensure that we are set-up to compete and win,” eBay said. Restructuring and separation costs are expected to be between $210 million and $240 million in the first quarter and $350 million to $400 million for the entire year.
Baird analyst Colin Sebastian, who has previously said Google could be a suitor for eBay mentioned in his blog, “In general these moves could make for a cleaner, or more attractive, merger or acquisition.”
Some believe that potential buyers of eBay Enterprise include companies focused on building ties with other businesses, such as Salesforce.com Inc, IBM Corp, Demandware Inc, Adobe Systems Inc or startup Bigcommerce. The space they believe will be interesting to watch out in the coming months!
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