Justifying the split of Paypal and Ebay

There can be many reasons for a company to split. However, with this case between the split
of Paypal and Ebay the main reasons can be put as follows.
1. To improve organizational focus and strengthen management
2. To maximize shareholder value
3. To optimize investments
Now lets consider the above mentioned reasons in detail.
Larger companies have complex structures. So there exist a higher possibility of the structure
and functions to get convoluted and messy when there are different ideas about the future of
the company. So a split is performed in order to get the company on the best track. There
were many speculations on why Paypal has decided to get separate from eBay. According to
financial analysts Ebays performance had come from PayPal. But Paypal had increasingly
found new revenues off-eBay during the time of split. This supported the argument that
PayPal needs to be unshackled from the mother company to truly fulfill its potential while
still providing service to Ebay trades. However, it was clear that Paypal could stand solidly
on its own two feet unhindered by management from eBay. Together, eBay and Paypal have
proven to be a strong business. Separately, they will be even stronger. By splitting, the two
companies were able to co-exist in harmony while benefiting even more than when they were
under one shelter. The split helped both Paypal and Ebay to improve organizational focus and
it allowed Paypal to widen its horizons in E-money transactions under new strengthened
managements.

Usually shareholders are more concerned about cash flow in a business and getting a return
on their investments in the business. Naturally, the growth of a business will mean higher
returns for them. Therefore, they would appreciate seeing a company take aggressive
measures in order to achieve that growth, especially if the company is clearly being held back
from doing so. Here when considered to Paypal its share value increased by 8% at the
announcement of the split. Financial analysts assumed after the split Paypal would worth
more that Ebay e. Later in 2015 Paypal was worth $ 49.5 billion while Ebay was only $ 33.7
billion. Before the split they were worth $ 79 billion.
Shared ownership can hinder making investment optimizations decisions. They cannot freely
decide on how to allocate investments for their strategies, divisions, and projects without first
having to confer with the other segment. In a complex structure such as Ebay, there tends to
be a hierarchy or prioritization, and if the segment is slightly low on the priority list, they will
not be able to allocate investments properly and efficiently.
It was really a good idea for both companies to remain friends after the split. They signed an
agreement that prohibits them from competing against each other with respect to their core
businesses. This means that Ebay wont establish a dedicated payments system while Paypal
wont set up a marketplace to rival eBay. However, both companies are not prohibited from
working with other external direct competitors. For example, Paypal can provide its payment
systems service to other marketplaces for physical goods while eBay can employ other online
payment companies for its transactions pursuing their own investments.
Applying Lewins model of change to this scenario
Lewins model on change can be used to explain the events before split, on split and after
split of Ebay and Paypal. In Lewins model of change there are three mains parts which are to
be fulfilled, namely unfreezing, movement and refreezing. Now lets discuss each part with
regard to Paypals split from Ebay.
Unfreezing usually creates an awareness about the upcoming change while minimizing the
forces against change and by persuading stakeholders that change is necessary by increasing
dissatisfaction for the current system and encouraging accepting the better one. Key People
related to Ebay and Paypal had different ideas regarding the split. Below given diagram is a
vivid graphical illustration of their initial ideas.
The activist share holder Carl Icahn planted the seed of making Paypal and Ebay two
different companies. He created an enhanced awareness within other shareholders of Paypal
that Paypal would be better off Ebay. John Donahoe who was the former CEO of Ebay had a
contrary idea. But later with the increasing pressure from the shareholders he agreed for the
change.
Movement is introducing and implementing the change successfully. Change management
should be given resources required for the successful implementation of the change. Those
affected with change must be involved at some decision-making process to reduce the
resistance to change. EBay shareholders will received one PayPal share for every Ebay share
they own as of July 8 2015. This was a very clever move to make the change smoothly. Also
Ebay displayed a notice in its web site that Paypal is going to be a separate company for some
weeks. In that notice they promised that Ebay users will never experience in change
regarding to the payment methods in Ebay. It was really important since business on Ebay is
totally based on trust and Paypal was ensuring money back guarantee for transactions took
place on Ebay.
Refreeze is the next step in Lewins model. Change must be continually monitored by the
management even after implementation. There is a risk that stakeholders may move back to
old system. Now this step went pretty well. Paypal continued providing money back
guarantee scheme for the transactions occurring on Ebay. I have been a member of the Ebay/
Paypal community since 2013. According to my personal experience nothing negative has
really occurred on the payment methods and the money back guarantee methods on Ebay.
Now Ebay/Paypal users have forgotten that the two companies have split since they function
as the same way before the split.