The separation is expected to be completed next year. AP / Press Association Images AP / Press Association Images / Press Association Images

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EBAY WILL SPIN -OFF PayPal into its own business starting next year.

PayPal, the online payments juggernaut, is seen as the real crown jewell of the eBay business and investors have been clamouring for a way to unlock PayPal’s value.

The activist investor Carl Icahn in particular has been a big advocate of spinning off PayPal and The New York Times explains why a spin-off was favoured from Icahn’s perspective:

PayPal was a central focus of a lengthy battle between eBay and Mr. Icahn, who demanded a spinoff of the unit as a way to generate value for shareholders. Such a move, the hedge fund billionaire contended, would highlight PayPal’s own strengths while letting its management team and eBay’s focus on their own core businesses.

In the announcement, eBay said that a recent strategic review of the company determined that both eBay and PayPal would be better off with a sharper focus and that the benefits of being together in the past were likely to fade.

According to the statement, PayPal revenue grew 19% over the past year to €5.7 billion.

EBay’s revenue, excluding that of PayPal, is still a little bigger at €7.6 billion but is growing much more slowly, something clear from this graph provided by PayPal during today’s announcement.

The statement also says that one in six dollars spent online is processed by Paypal with $203 billion in payments made through the the service over the last 12 months.

Ebay’s current president and CEO John Donohoe is one of the people tasked with overseeing the separation of the two companies. He says that they now need distinct strategies.

“A thorough strategic review with our board shows that keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively,” he said.

The industry landscape is changing, and each business faces different competitive opportunities and challenges…As independent companies, eBay and PayPal will enjoy added flexibility to pursue new market and partnership opportunities.

The company says they expect the transaction to be completed as a tax-free spin-off in the second half of 2015.

EBay’s shares shot up 11% on the news before settling at the impressive 6.5% rise.

- Joe Weisenthal

With reporting from Rónán Duffy