eBay and PayPal have signed an agreement which prohibits them from competing against each other in their core businesses ahead of their split.
The five-year operating agreement is aimed at ensuring both companies are healthy after the split and will continue to take advantage of existing synergies. It also has a one-year transition period.
An updated Form 10 to this effect was filed by PayPal Holdings with the Securities and Exchange Commission (SEC) recently with detailed information on the partnership and prospective financial impact of the agreements between the two companies.
The agreement will facilitate maximum freedom to both companies in a sense that PayPal will be free to pursue new markets and eBay can tie up with alternative payment providers.
However this is not applicable during the term of the agreement. So, PayPal cannot create its own marketplace for physical goods, while eBay cannot create its own payments system on the core eBay platform.
Both companies need to maintain service level agreements to ensure seamless separation as well as continue to share data in key areas for the benefit of customers as well as risk, trust and fraud programmes.
eBay has also detailed additional information about the post-separation leadership of both companies in the filing.
eBay CEO John Donahoe came under increasing pressure from activist investor Carl Icahn in 2014 to split the company into two payments business, PayPal, and legacy e-commerce marketplace, eBay.
Initially Donahoe and the eBay board put up a successful fight to resist the split, but a few months down the line did a complete U-turn during the company’s annual strategic review.
Commenting on the move, Donahoe said in a statement as cited in moneycontrol.com: "Very consciously we didn’t make a reactive decision in Q1 based on a short term event like a proxy fight because we have a long history of being thoughtful and deliberate of how do we set this business up to succeed over the long term.
"From the beginning, Pierre Omidyar, our founder, has a deep commitment to the long term. … And this process has gone through what is the best way to help eBay and PayPal succeed over the long term. I feel confident this is the right direction and that’s the reason we’re pursuing it."
eBay acquired PayPal for $1.5bn in 2002. They are on track to split in the second half of this year.