Merchant Innovation

eBay Updates Post-Split Operating Agreement

eBay and PayPal’s evolution toward two separate entities took a big step forward today (April 9) with the filing of the updated Form 10 – which details what the operating futures of the two firms will look like once eBay and PayPal split. The goal, according to eBay CEO John Donahoe, is to create two financially strong, synergistic firms.

According to a post on the eBay blog the operating agreement detailed in today’s filing does two things: provides “details about how the two companies will continue to partner with one another,” and “provides additional information about the prospective financial impact of the agreements between the two companies.”

This agreement will remain in place for five years (with a one-year transition period) and was designed to “focus on preserving the benefits of the existing relationship between the two companies and ensuring that the separation is seamless for customers of both companies.”

The specific terms of the agreement will allow PayPal to pursue payments partnerships with other marketplaces and eBay to incorporate alternative payment providers to increase flexibility for both firms. That flexibility however does not include the ability for either firm to directly compete with each other – PayPal will not be permitted to create a rival marketplace and eBay will not be permitted to create a new payments platform once PayPal is spun off.

PayPal will remain contractually obligated to provide “most favored nation” pricing to eBay, as its largest customer. eBay will also implement incentives for PayPal to maintain an 80 percent penetration rate on its marketplace platform. Data between the two entities will not be shared for any reason other than to respond to customer service inquiries and to assure that the split of the two companies does not interfere in any way with providing service to customers.

PayPal will continue to devote resources to developing new products for eBay.

The agreement also provides some insight into what the post-separation leadership of both companies will look like.

eBay Founder and current board Chairman Pierre Omidyar will serve on both the eBay and PayPal boards in a non-chair capacity. eBay President and CEO John Donahoe will become the Chairman of the PayPal board. Current eBay Inc. Director Tom Tierney will chair the new eBay board and current eBay Inc. CFO Bob Swan will join the new eBay board.

The blog post also noted that further corporate governance details, including information about eBay and PayPal’s full boards of directors will be released in coming months.

eBay CEO Designee Devin Wenig and PayPal CEO Designee Dan Schulman will serve as directors on their respective company’s boards.

Additional details on the operating agreement, John Donahoe’s view of marketplaces past, present and future and the value of PayPal to eBay in a post IPO world can be found on PYMNTS.com tomorrow (April 10) in an interview between Donahoe and MPD CEO Karen Webster done in advance of the release of operating agreement rules.

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