EBay will spin off PayPal, its fast-growing payments business, into a publicly traded company in the second half of 2015.
EBay Chief Executive John Donahoe previously resisted demands by activist investor Carl Icahn to spin off the service, believing PayPal was integral to eBay's business, and vice versa.
Icahn backed off from his demand last spring.
"A thorough strategic review with our board shows that keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively," Donahoe said in a statement on Tuesday, according to Reuters.
PayPal was founded in the 1990s and went public back in 2002. The company was then acquired by eBay soon afterward for a reported $1.5 billion.
The new eBay will be headed by Devin Weing, president of eBay Marketplaces and former head of the Markets division of Thomson Reuters Corp, once the tax-free spinoff to shareholders is completed.
"For more than a decade eBay and PayPal have mutually benefited from being part of one company, creating substantial shareholder value," Donahoe said. "However, a thorough strategic review with our board shows that keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively."
American Express Co. executive Dan Schulman joins PayPal immediately as president and CEO of PayPal after the spinoff, the company confirmed in a statement.
Chief Financial Officer Bob Swan and Donahoe will oversee the separation. Both will also serve on the boards of each company, according to Reuters.
PayPal had 143 million active users at the end of 2013, a 16 percent from the same time in 2012.
"As independent companies, eBay and PayPal will enjoy added flexibility to pursue new market and partnership opportunities," said Donahoe in a statement. "And we are confident following a thorough assessment of the relationships between eBay and PayPal that operating agreements can maintain synergies going forward."
See Now: OnePlus 6: How Different Will It Be From OnePlus 5?