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The latest update in the ongoing cold war between billionaire activist investor Carl Icahn and eBay Inc. (EBAY - Analyst Report) is that Icahn has advised the giant online marketplace to spin off 20% of PayPal in an Initial Public Offering (IPO). This follows his proposal of a complete spinoff of PayPal with a different management team, which was rejected by eBay.

Icahn‘s earlier proposal of a spinoff fell flat and he doesn’t seem inclined to bow out easily. Therefore, his latest call is not a withdrawal but just a smart modification of his previous offer of separation of the two businesses. Alas, he faces a rejection yet again.

According to Icahn, eBay and PayPal’s association shadows their individual market value. In comparison to companies like Amazon.com Inc. (AMZN - Analyst Report) and Visa Inc. (V - Analyst Report), eBay lags both in terms of worth and accomplishments.

Per Icahn, the proposed partial spinoff will increase the equity holder’s base and help them to remain competitive in the long run, thus boosting the progress of both the companies. He also suggested that the two companies should have their individual management teams, thus eliminating the scope for any disagreement between the two businesses.

Carl Icahn owns 0.82% of eBay. The giant online marketplace turned down his proposal as it believes that there will be no additional benefit to either eBay or PayPal if Icahn’s demand is met. On the other hand, the two can, in combination generate the maximum value for shareholders.

The digital payment arm, PayPal, was acquired by eBay in 2002 for $1.5 billion. Since then, it has become the giant marketplace’s engine for growth and the actual reason for investors to hold shares of eBay. As more and more customers prefer online shopping nowadays, the use of this online payment service has increased. Thus, PayPal accounts for a large percentage of eBay’s total revenue.

Additionally, it along with fulfillment services, enables eBay to provide a complete solution to retailers, whether brick-and-mortar or online. The unit thus drives eBay's share value.

Recently, Alibaba Group, a Chinese Internet company in which Yahoo! Inc. (YHOO - Analyst Report) holds a stake, announced its IPO.

Currently, eBay holds a Zacks Rank #3 (Hold).

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