Could Square be collateral damage in Carl Icahn’s war on Ebay?

Which division should get top billing?
Which division should get top billing?
Image: AP Photo/Manu Fernandez
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Carl Icahn just revealed his latest target: Ebay. But the auction payment company might not be the ultimate casualty if Icahn gets his way.

Today it emerged that America’s loudest activist investor has built an 0.8% stake in Ebay, and is pushing the company to spin off its online payment processing business, PayPal, which it bought in 2001 from the entrepreneur Elon Musk and venture capitalist Peter Thiel. Assuming Icahn’s right, the winners from such a proposal would be Ebay shareholders. The potential losers are less immediately clear.

Icahn told Bloomberg that PayPal “hasn’t done as well as it should have” and that a spinoff was a “no-brainer” that would unlock value. PayPal president David Marcus said this week that the company had “sucked so badly” in recent years that it had opened the door to new competitors.

Chief among those competitors is Square, which is run by Twitter co-founder Jack Dorsey. There has been plenty of hype about Square and its potential to disrupt the online payments industry, including the turf currently occupied by PayPal. The last time we checked, it was on track to process an estimated $30 billion worth of online payments this year. Ebay’s latest results show that PayPal’s total payment volume was $180 billion in 2013. Imagine what kind of a gap it could open up if the company were performing at its full potential.

The same reasoning could apply to valuations. Square’s next financing round  could value it in the private markets at somehwere around $5 billion. Icahn must be licking his lips at what a standalone PayPal could be worth.