Today it was revealed that Carl Icahn had taken a stake in eBay Inc (NASDAQ:EBAY) and called for the company to spinoff paypal. Carl Icahn discussed his (non-original idea) in a Bloomberg TV interview. However, John Donahoe, President & CEO, eBay Inc (NASDAQ:EBAY), countered Carl Icahn on the company conference call. Below is the segment of the call where John Donahoe discusses the Icahn proposal.

ebay Inc (EBAY) paypal Carl Icahn
ebay Inc (EBAY) paypal

John Donahoe – eBay Inc (NASDAQ:EBAY) on Paypal and Carl Icahn

Before we move to questions, I want to take a few minutes to speak about the proposals we  received from Carl Icahn.

Mr. Icahn has proposed nominating two of his employees to our Board of Directors. He is also submitting a non-binding proposal to spin off and separate PayPal.

Our Board and Management team welcome the perspectives of all shareholders and I spoke with Mr. Icahn briefly last week to hear his views. We are committed to enhancing value for all shareholders and will continue to pursue strategies we believe will enable us to achieve this objective.

Our Board’s Nominating and Governance Committee will consider Mr. Icahn’s nomination of his employees in the ordinary course of business.

Let me remind you that we have an exceptionally strong Board, with a diverse group of highly-qualified directors. In fact, we have a world-class Board.

Our directors have deep experience in the technology and financial services sectors, and a track record value creation. This is the standard by which all future candidates will be assessed.

Our Board and Management team also evaluate the Company’s strategic direction on a regular basis. So you won’t be surprised to hear that this is not a new idea. Rest assured that when we see a path that unlocks value, we pursue it.

For example, in 2009, we divested Skype because synergies did not exist. This demonstrated our commitment to making rational decisions that are in the best long-term interests of the Company and our shareholders.

Based on what we see today, we continue to believe that the Company, our customers, and our shareholders are best served by keeping PayPal and eBay together. In short, we believe this is the best way to maximize shareholder value. Our Board is unified in its view on this.

Let me give you a little context as to why we believe this. For more than 18 years, our Company has focused on enabling global commerce. Connecting buyers and sellers anytime, anywhere is how we drive growth and create value.

Payments is an essential part of commerce. Everyone loves to shop; no one loves to pay. So we focus on taking the friction out of paying. We strive to make it easy, safe, and secure. And we are innovating to make payments a way to drive engagement and create more value for consumers and merchants.

This is what we do. And we have been successful exactly because PayPal and eBay are together. It is why we believe we are so well-positioned to lead in the blended worlds of online and offline commerce.

No other payments competitor has achieved PayPal’s success, because no other competitor has a commerce platform like eBay. In fact, today, we are seeing more and more commerce and payments competitors trying to replicate the eBay and PayPal model. We are seeing a convergence of commerce and payments businesses, not a separation.

PayPal and eBay make sense together for many reasons. Let me highlight three that we believe are among the most important.

First, eBay accelerates PayPal’s success. Second, eBay Inc (NASDAQ:EBAY) data makes PayPal smarter. And third, eBay funds PayPal’s growth.

Let me provide a little more perspective on each. eBay accelerates PayPal success. From the beginning PayPal has benefited from signing up eBay customers with virtually zero acquisition costs.

Over the past decade, tens of millions of customers PayPal acquired on eBay Inc (NASDAQ:EBAY) have helped fuel its growth off of eBay Inc (NASDAQ:EBAY). Simply put, eBay Inc (NASDAQ:EBAY) and PayPal together create mutually reinforcing network effects. Mobile is the most recent example of this reinforcing network effect. Mobile is the single most important platform shift in the past decade and PayPal’s success in mobile payments started on eBay. eBay’s customers were an important source of PayPal’s early mobile payments volume, helping PayPal gain traction quickly and become a mobile payments leader.

Let me put some numbers to illustrate this. In 2010, PayPal generated approximately $600 million of mobile payments volume, 80% of which came from eBay mobile apps. In 2013, three short years later, PayPal’s mobile payment volume grew to $27 billion, both on and off eBay.

That is massive growth, a 45 times increase in a three-year period and a leadership position in mobile payments. Success on eBay enables PayPal success off eBay.

Second, eBay data makes PayPal smarter. Risk is PayPal’s secret sauce. PayPal’s risk management capabilities are a source of competitive advantage and anyone who understands risk knows that more data makes you smarter.

By providing closed loop global transaction data, eBay enhances PayPal’s world-class risk capabilities in its ability to [underrate] both sides of a transaction. This is evidenced by PayPal’s loss rate of only 31 bps on $180 billion of total payment volume. Why, in an era of big data, would we dramatically reduce the amount of data available to PayPal?

And last but not least, eBay funds PayPal’s growth. eBay Inc (NASDAQ:EBAY) is a major contributor to PayPal’s profitability and expansion.

For example, eBay Inc (NASDAQ:EBAY) represents approximately one-third of PayPal’s revenue and well over half of its profits. eBay continues to generate over 30% of PayPal’s new users at zero acquisition cost. And in 2013, eBay was a significant contributor to PayPal’s profit growth.

eBay is also a significant source of low-cost capital for PayPal, fueling areas such as credit, and acquisitions such as Braintree. The economic foundation provided by eBay Inc (NASDAQ:EBAY) gives PayPal the latitude to be more aggressive as it pursues opportunities off of eBay.

Before I close, I want to comment about the risk of distraction. Separation may seem like a compelling concept at first blush, but when you separate two highly intertwined and highly performing businesses, it creates significant distraction and dyssynergies.

At a time when competition is increasing and innovation is accelerating, we cannot afford distraction. So we believe that an unwavering focus on executing our strategies is the best way we will drive growth and create shareholder value.

To sum up, strong synergies have always existed between eBay Inc (NASDAQ:EBAY) and PayPal and new synergies are driving new growth in areas such as mobile. If and when these and future synergies run their course, we are committed to doing what is best for the Company and for shareholders over the
long-term. You can count on us.

Today, we strongly believe that PayPal is a more competitive, more agile, and ultimately more successful when combined with eBay. PayPal and eBay are best together.

That is what we and our Board believe. And it is why we believe our current approach is the best way to maximize shareholder value.