Description

On 9/30/14 eBay announced that it would spin-off its PayPal division in 2H15 (likely 3Q15) and that Dan Schulman, President of Enterprise Growth at American Express, would become CEO of the spin-co. rosco37 and zeke375 have detailed eBay in years past, so the purpose of this posting is to provide a sum of the parts analysis.

The overhead allocation and the pro-forma balance sheet will remain a mystery until we get a Form 10 next year. But we can still make some educated guesses see what, if any, multiple expansion opportunity awaits at the time of the spin. Comps below:

The members of this comp set grow at about 9% on average with 30% EBITDA margins, whereas PayPal grows at double that rate with roughly the same margins. So, my thinking is that once the company spins we should expect it to trade on a higher multiple than its peers. The sum of the parts analysis below suggests the market is implying a 13x multiple; but if PayPal commands a premium for its 2x average growth – that 13x figure is likely too low.

Because e-bay has negative net debt I assume that the spin-co will also have negative net debt – I chose $1bn of cash as a starting point. My estimate of the overhead allocation is a best guess – that figure should firm up as we get more disclosure. It’s worth noting that the WSJ recently reported that e-bay was considering a cut of nearly 10% of its workforce. So, by the time we get into 2015 the corporate expense may be lower.

Sum of the parts analysis below:

Each additional turn of multiple translates to $2.33/share of value in the combined company. We will not really know what multiple the market will place on PayPal until the spin takes place. For purposes of illustration, if we put the PayPal spin-co on a 16.5x multiple similar to V/MA then the spin-co would be worth $35.82, or about 24% more than currently implied by the eBay share price today.

Catalyst

The company will spin-off the PayPal business in 2H15 (likely 3Q15).