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Related Links Even a Stand-Alone PayPal Has Far to Go to Topple the Old Payment Order

At eBay’s annual board retreat in Half Moon Bay, Calif., in June, the company’s 12 directors found themselves moving in a somewhat unexpected direction: breaking up the company just as the hedge fund billionaire Carl C. Icahn had suggested.

Only six months earlier, eBay had rejected Mr. Icahn’s call to spin off PayPal, the payment processor, which generated nearly half of the overall company’s revenue. At the time, management insisted that keeping the company together made more sense.

But after months of long discussions about where the e-commerce industry was headed — the emergence of new payment standards; the rise of cardless payment systems for services like Uber; the hotly anticipated market debut of the Alibaba Group — John J. Donahoe, the company’s chief executive, and his other directors began to see merit in setting PayPal free.

We “got to the same place that Carl said early on,” Mr. Donahoe said in an interview.

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By September, the directors had formally decided to pursue a strategy that their onetime nemesis had advocated all along. On Tuesday, the company announced that PayPal would be spun off as a separate publicly traded company, letting each of eBay’s two main businesses chart its own course while maintaining most of their important business ties.

The spinoff, set to be completed in the second half of next year, is one of the biggest changes in the nearly 20-year history of eBay, in a single stroke reducing the company largely to its enormous online marketplaces. And it makes PayPal, which has grown tremendously since eBay bought it in 2002, an independent company free to pursue its own strategy.

Investors applauded the move, pushing eBay’s shares up 7.5 percent on Tuesday, to $56.63.

The breakup of eBay is among the most prominent in corporate America this year, as companies have looked to simplify their businesses in hopes of appeasing shareholders hungry for ways to bolster stock prices. Spinoffs have been especially popular among activist shareholders, who buy stakes in companies and call for changes.

But the decision was especially notable given eBay’s full-throated defense against the often vitriolic assault by Mr. Icahn, who called eBay among the worst-run companies he had ever seen and described Mr. Donahoe as “either incompetent or negligent.” On Tuesday, even Mr. Icahn, a longtime corporate raider, seemed surprised by the apparent change of heart, writing on his corporate blog, “We are happy that eBay’s board and management have acted responsibly concerning the separation — perhaps a little later than they should have, but earlier than we expected.”

Yet Mr. Donahoe and other company representatives insisted that eBay had kept an open mind about the possibility of spinning off PayPal for some time. Mr. Icahn’s attack in January came at the beginning of the board’s strategic review process, before directors could take stock of the latest state of the industry.

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What Mr. Icahn proposed was nothing new. Spinning off PayPal, he argued repeatedly, would highlight its own strengths while giving its management team the flexibility to look after the core business.

And creating a separate board for PayPal could help remove what Mr. Icahn contended were conflicts with its parent.

Yet Mr. Donahoe steadfastly rebuffed those demands, arguing that his company reaped benefits from holding on to one of the leading payment processors, and vice versa.

“We and our board believe the best way to drive long-term shareholder value is to keep eBay and PayPal together, to capitalize on the opportunities,” he said during an analyst call in January, after disclosing Mr. Icahn’s intentions. “And the distraction and dis-synergies of separation would be happening exactly at the wrong time. We’re in this window of opportunity of commerce.”

Such was the strength of eBay’s defense that Mr. Icahn eventually scaled back his demands for an independent PayPal and called for listing just 20 percent of the business on the stock market.

After settling a fight with Mr. Icahn in April, ceding him almost nothing other than the addition of a mutually agreed-upon director, the company gave few indications that a separation would happen anytime soon.

Ultimately, Mr. Icahn succeeded, though Mr. Donahoe contended that the company had arrived at its conclusion through “a deliberate process” and not by reacting to outside pressure.

Several factors were weighing on the eBay board.

Since its acquisition, PayPal has grown far beyond being just the payment processor for countless online auctions. Indeed, it has been one of the fastest-growing parts of eBay, accounting for 41 percent of its parent’s total net revenue last year. Over the last 12 months, PayPal processed about $203 billion in payment volume and now has roughly 153 million active digital wallets.

Less than one-third of its total dollar volume of payments processed last year came from eBay. Within three years, according to Mr. Donahoe, that number could drop to just 15 percent.

One of PayPal’s most promising new operations comes from handling mobile payments for hot e-commerce services like the car-ride app Uber and the room-rental site Airbnb, courtesy of the takeover of the smaller payments provider Braintree.

Several analysts have said that close ties to eBay could ultimately hold back PayPal. Companies like Amazon.com and Alibaba would most likely avoid using the service as long as it was tied to a top competitor, Seth Shafer, an analyst at SNL Financial, argued last month.

The board’s strategic review also focused on potentially industry-changing developments, from the rise of digital currencies like Bitcoin to the looming emergence of Apple’s payments service.

Compounding the process was the departure in early June of PayPal’s president, David A. Marcus, who went to Facebook to lead its messaging service. As directors and management considered how to fill the role, they began to consider whether spinning off PayPal could attract a higher-quality candidate.

“How do I get the best C.E.O. going forward?” Mr. Donahoe said in the interview.

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EBay ultimately hired Daniel H. Schulman, a senior American Express executive whom eBay announced on Tuesday would join PayPal as president. When PayPal begins its new life as a publicly traded company, Mr. Schulman, who led American Express’s alternative mobile and online payment services strategy, will be its chief executive.

The eBay marketplace business will continue to be led by Devin Wenig, who will become chief executive after the split. Mr. Donahoe will step down once the spinoff is complete. People briefed on the board’s deliberations said that the move reflected no board disenchantment with his handling of the defense against Mr. Icahn.

And Mr. Donahoe said that he fully supported the plan.

“I’ve gotten up every morning in the last 10 years with a burning desire to do whatever we can to set eBay and PayPal up for success,” Mr. Donahoe told CNBC. “And that’s what’s behind this decision, and that’s what’s behind my actions.”