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Let the custody battles begin.

Shareholder activist Carl Icahn reversed course today, saying he no longer supported the idea that PayPal be completely spun off from eBay.

ebaylogoSince January, Icahn has been pressuring the online retailer and payments company to sell its fast-growing payments business, and has been critical of how well the company’s board has been doing their job.

However, in new plans released today, he admits that eBay and PayPal have important synergies, and that eBay should now only sell 20 percent of PayPal in an IPO. By having a joint custody situation, Icahn claims PayPal would be able to have a dedicated management team, the resources and equity necessary to move as aggressively as possible.

“Luckily for PayPal, competitors such as Google, Apple and many others do not yet have the same comparable scale and product offerings,” he wrote.

EBay was pretty pleased with the change of mind, adding that the idea of spinning out part of PayPal is not new, but says the timing just isn’t right.

In today’s statement, eBay wrote:

“Will a partial spin make PayPal more competitive? Will it accelerate growth? Will it be possible without distracting PayPal at a critically important time? And, importantly, will it create sustainable value for shareholders over time? Today, we believe the answer to these questions is no. Not now. In the future, our board will continue to evaluate all strategic options and make the right decisions for shareholders. But today, PayPal and eBay are better together.”

Oddly, having PayPal as part of a massive conglomerate does not turn off everyone. During all the mud-slinging that’s taken place over the past few weeks, Baird analyst Colin Sebastian made the recommendation that Google acquire both eBay and PayPal.

“With Carl Icahn recasting public debate around the ownership of PayPal, and the integration of commerce and payments more broadly, we believe one potential ‘home run’ opportunity missing from the discourse is a combination of Google with eBay/PayPal,” Sebastian wrote in a note to clients.

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