PayPal Spinoff Could Help eBay Compete With Amazon

The combined value of eBay (NASDAQ:EBAY) and PayPal could grow by as much as 30 percent if the online retailer were to spin off the online payments unit, according to data compiled by Huntington Asset Advisors and Bloomberg.

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PayPal is increasing sales twice as fast as eBay, which has returned less than 2 percent to shareholders since John Donahoe succeeded Meg Whitman as chief executive officer in March 2008. Rival Amazon (NASDAQ:AMZN) has since overtaken eBay, doubling in value to $83 billion.

Morgan Keegan & Co. said a spinoff would let eBay finance its transformation into an online retailer more like Amazon without raising PayPal’s borrowing costs.

“It may simply be better for PayPal to not be buried inside EBay,” said Peter Sorrentino, who helps oversee $14.5 billion at Huntington, including shares of EBay. “That’s something I would hope they’ve looked at as an exit strategy. Then that would allow you to jack up EBay.”

Lana Marks, a spokesman for eBay, said the company has no plans to spin off the unit, referring to a letter Donahoe sent to PayPal employees last week after the division’s former President Scott Thompson announced he would become Yahoo’s (NASDAQ:YHOO) next chief executive officer.

“PayPal’s vision is clear,” Donahoe said in the letter. “PayPal had an outstanding 2011. Our strategies are set and we have a strong, focused leadership team in place.”

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

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