eBay provided a guide to its pending breakup with PayPal in an infographic called the Road to Separation. eBay had initially fought off attempts by shareholder Carl Icahn to spin off PayPal for the first 9 months of 2014, but by the end of September it ceded to his demands, agreeing to break up the company.
In a partial explanation of the reversal, Donahoe said last year that the company had grown comfortable that eBay and PayPal could achieve many of the benefits of the synergies they experienced by being together through “arms-length commercial relationships,” including the benefits of data-sharing for eBay and PayPal’s risk models.
eBay entered into an agreement with the Icahn Group dated January 23, 2015 (called the “Icahn Agreement”) that dictates certain terms around the separation. Interestingly the director Icahn forced onto eBay’s board will get to decide on which company’s board he wishes to sit after the split – eBay or PayPal.
The eBay guide released this month breaks down the major steps necessary to splitting the company in two. eBay noted that they are not all of the steps required for the separation, and that they may occur in a different order. They are also subject to SEC rules, regulations and reviews.
File Required Information with SEC: Provide all information or filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities for listing of PayPal stock.
Transaction Agreements: Transaction agreements relating to the separation need to be duly executed and delivered.
Complete Transfer of Assets and Liabilities from eBay to PayPal: Needs to be completed in accordance with the separation and distribution agreement.
Opinion from Outside Counsel: eBay needs to receive one or more opinions from eBay’s outside legal counsel or tax advisors regarding the qualification of the distribution as generally tax-free.
SEC Review: SEC needs to declare effective the registration statement.
Information Made Available to eBay Stockholders: This information statement needs to be made available to all eBay stockholders.
Approvals from Government Entities:: Receive all and any approvals of any governmental entities required for the separation, including any required approvals of the Commission de Surveillance du Secteur Financier (CSSF) and the Bank Centrale du Luxembourg (BCL).
Execution of Transaction Agreements: The transaction agreements relating to the separation need to be duly executed and delivered by the parties.
Listing of PayPal Shares: Shares of PayPal common stock needs to be accepted for listing on the subject to official notice of distribution.
eBay warned that the separation of PayPal from eBay is contingent that no other event or development occurs that would result in the separation not being in the best interest of eBay or its shareholders as judged by the eBay board of directors.
Anticipating Possible Disputes
eBay formed PayPal Holdings Inc. in January, which then filed a Form 10 with the SEC last month in which it provided details on the effect of the separation on eBay shareholders. The filing also outlined how the two companies will work together through an operating agreement and other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property matters agreement. (Those “arms-length commercial relationships” Donahoe had referred to last year.)
Anticipating possible disputes that could arise from the “divorce,” the separation and distribution agreements contain provisions that govern the resolution of disputes that might arise between the two companies related to the separation or distribution. “These provisions will contemplate that efforts will generally be made to resolve disputes, controversies and claims by escalation of the matter to executives of PayPal and eBay and then to a committee comprised of executives and directors of PayPal and eBay before PayPal or eBay may initiate adversarial proceedings.”