E-commerce firm eBay Inc has dismissed the proposal of activist investor Carl Icahn for the spin-off of its PayPal division, Reuters reported. The refusal could pave the way for a possible battle with the investor, the report said.

In 2002, eBay acquired PayPal in a $1.5 billion deal. The e-commerce giant, which has thought of hiving off the payments platform, said PayPal would lose synergies with the entire e-commerce business if it would operate independently, the report said.

Chief Executive John Donahoe explained the reason behind their refusal in a post-results conference call, "First, eBay accelerates PayPal's success. Second, eBay data makes PayPal smarter. And third, eBay funds PayPal's growth."

However, some analysts said a spinoff could open up the value of the service. Operating PayPal separately would persuade other Internet retailers to use the service and allow it to keep key executives, the report said.

Donahoe said he had listened to Icahn but did not agree to the proposal. He also said that eBay plans to increase investments to ensure PayPal's position in the market, a move that could put pressure on gains.

In an interview with Reuters, Donahoe said his firm began asking for advice from Goldman Sachs, the financial adviser of eBay, five days ago after they got the letter from Icahn.

The proposal from the activist investor came after he demanded that Apple increase its share buybacks by $50 billion. Apple has advised its stakeholders to reject Icahn's proposal, the report said.

Analysts like Colin Gillis of BGC Partners believe that a battle is in the offing. Gillis told Reuters, "I expect it to be a battle. One of the reasons for that is because for commerce and payments, you need to remove as much friction from those two systems as possible. If you separate it out, you put more friction between" them.