Carl Icahn has taken a stake in eBay and is proposing a spin-off of its fast-growing PayPal division.

But the e-commerce giant has rebuffed the proposal, setting the stage for a potential battle with the activist investor.             

EBay, which bought PayPal for $1.5 billion in 2002 and has considered hiving off the multi billion-dollar payments service, said last night that the business would lose synergies with the overall e-commerce business as an independent unit.
"First, eBay accelerates PayPal's success. Second, eBay data makes PayPal smarter. And third, eBay funds PayPal's growth," the company's chief executive John Donahoe told analysts.

Some analysts, however, said that operating as a separate entity would encourage other online retailers to adopt the service and help retain key executives, with a spinoff that could unlock the value of a service that grew 19% during the Christmas quarter.

Donahoe said he had heard Icahn out but rejected his proposal. He added that the company intended to step up investments to safeguard the market position of the thriving payments service, which may exert pressure on margins.
Donahoe told Reuters in an interview that his company started seeking advice from its financial adviser,Goldman Sachs, five days ago, following Icahn's letter to eBay.
Icahn's proposal comes as the billionaire investor is urging Apple to share more of its $146 billion cash pile with shareholders. The activist is demanding Apple do an additional $50 billion in share buybacks, which the company is advising shareholders to reject.
PayPal started life as an independent company, founded in the late 1990s by technology entrepreneurs including venture capital investor Peter Thiel.

PayPal battled with eBay for supremacy in the then-emerging online payments market. But soon after it went public in 2002, eBay acquired PayPal for $1.5 billion. Today, its growt houtpaces the rest of the company and it accounts for a large chunk of eBay's overall stock market value.
The unit has been a key driver of eBay's share value, as the company struggles to compete with larger rival
Analysts have estimated that PayPal, which already yields 40% of the company's revenue, may account for as much as half of the corporation's market value, which now stands atabout $70 billion.
Icahn is known for decades of strong-arm tactics including proxy fights against major corporations. This month, he bought shares and derivatives giving him a 0.8% economic interest in eBay, and also nominated two of his employees to the eBay board. Those employees were not identified.

Revenue at eBay's PayPal division rose 19% during the key Christmas quarter, fueled by the growing use of mobile phones to shop. PayPal's total payments volume, a gauge of how much it is used to complete a transaction, rose 25% to $180 billion worth of transactions.
Companywide, revenue rose 13.5% to $4.53 billion for the quarter ended December 31.
For 2014, eBay forecast revenue of between $18 billion and $18.5 billion, while analysts expected a forecast of $18.5 billion, according to Thomson Reuters.
Net income for the fourth quarter was $850m, or 65 cents a share, up from $751m, or 57 cents a share, a year earlier. Excluding some items, eBay earned 81 cents per share, a cent better than expected.