Taking the next step in eBay Inc.’s plan to separate eBay and PayPal into two standalone, publicly traded companies, PayPal Holdings has filed an updated Form 10 with the Securities and Exchange Commission (SEC). Today’s filing includes an updated summary of the operating agreement between eBay and PayPal, which details how the two companies will continue to partner with one another and provides additional information about the prospective financial impact of the agreements between the two companies.
The operating agreement – which will remain in effect for five years and have a one-year transition period – was crafted with a focus on preserving the benefits of the existing relationship between the two companies and ensuring that the separation is seamless for customers of both companies. Key elements of the agreement include:
- Flexible terms to preserve synergies, while providing opportunities for eBay and PayPal to pursue new markets and partnerships. For example, PayPal can work with all commerce/marketplace companies and eBay can offer its customers alternative payment providers.
- eBay will be incentivized to grow new users and increase PayPal penetration rates through referral services and penetration rate payments, with the goal of maintaining a penetration rate of approximately 80%.
- Limited non-compete agreements obligations protect eBay and PayPal as they continue their strong partnership, while giving each company the greatest flexibility. During the term of the agreement, PayPal cannot create its own marketplace for physical goods, while eBay cannot create its own payments system on the core eBay platform.
- The product development agreement means that PayPal will devote resources to develop new products for eBay. eBay and PayPal will also maintain service level agreements to ensure the separation will be seamless for customers.
- Continued data sharing in key areas between the two companies will benefit customer service as well as risk, trust and fraud programs.
eBay is also providing additional information about the post-separation leadership of both companies. Current eBay Inc. board Director Tom Tierney has been named Chair of the new eBay board. eBay Founder and current board Chair Pierre Omidyar will serve on both the eBay and PayPal boards in a non-chair capacity, and current eBay Inc. CFO Bob Swan will join the new eBay board. As outlined in the Form 10, current eBay Inc. President and CEO John Donahoe will serve as Chair of PayPal’s board. Further corporate governance details, including information about eBay’s and PayPal’s full boards of directors, and executive appointments, will be disclosed in the coming months. As previously shared, eBay CEO Designee Devin Wenig and PayPal CEO Designee Dan Schulman will serve as directors on their respective company’s boards.
Our intention is that both PayPal and eBay will be well-capitalized companies, with the financial flexibility to pursue their strategic priorities. We expect that each company will have an “investment grade” rating.
eBay Inc. believes it remains on track to separate eBay and PayPal into independent, publicly traded companies in the second half of 2015.
For a visual summary of the operating agreement between eBay and PayPal, please see the infographic on the eBay Inc. Separation Site.