Published On: Thu, Jan 23rd, 2014

Now Carl Icahn Takes On eBay : Demands 2 Seats On The Board And Spin Off Of PayPal

Master strategist, publicist and pretty good stock picker,  Carl Icahn has been taking more than a passing look at another prestige silicon valley favourite this week, not just Apple.

Giant internet trading site eBay Incannounced yesterday that Carl Icahn has made a proposal to its Board of Directors to nominate two directors on his behalf at their forthcoming Annual Gereal Meeting.

eBay also disclosed that Icahn has also formally proposed they should split out their payment processing subsidiary PayPal, either to third parties or spin it out to the company’s shareholders.

Finally, eBay disclosed that Carl Icahn had revealed to them he owned about a 0.82% economic interest in the company through derivative transactions (usually accomplished using swaps). With a market cap of about US$71 billion that implies his position cost him somewhere around US$582 million – pocket change these days for the right to push around a big company, under the standard activist playbook.

 

2nd Annual "David Moore's Funny Business Show"

Carl Icahn / Getty


Well the eBay Board of Directors was far from overwhelmed by the proposals it seems, and this is what they said, quite forcefully as these statements go, in response, first with respect to his board nominees:

eBay welcomes the opportunity to listen to the perspective of all of its shareholders, including Mr. Icahn. His Board nominations will be passed on to the Board’s Corporate Governance and Nominating Committee, which will consider them in the ordinary course of business. We would note that eBay has a world-class board of directors with directors who have significant experience in technology and financial services.”

Concise and quite “tart” one can say, and eBay then continued with respect to the idea of splitting out PayPal,

eBay’s Board of Directors routinely assesses the company’s strategic direction and has explored in depth a spinoff or separation of PayPal. eBay’s Board of Directors has concluded that the company and its shareholders are best served by the current strategic direction of the company and does not believe that breaking up the company is the best way to maximize shareholder value.”

In short they said no. Since Carl Icahn must have known they would do this, and since he is already something of a media darling for his recent moves, it again brings him a boatload of free publicity. The company’s shares got a 2% boost following the announcement, which was accompanied by its fourth quarter financial results, which continued to show moderate improvements.

In an accompanying corporate blog post, which is how companies can do their own PR on the internet these days without having to depend on the outside media, subsidiary PayPal chipped in as well saying, “PayPal is successful precisely because we are part of eBay Inc., not in spite of it, ”…“eBay Inc. has helped drive our success for more than a decade, and we continue to believe we’re far more valuable together.”

Of course, what else would they say of their own parent company, but even so the point is made.

Spinning out PayPal as an independent company has in a way been on the table ever since eBay bought it in late 2002 shortly after Elon Musk had cashed out by taking it public, as it both fits and doesn’t fit with what eBay does.

For PayPal itself, part of the logic for being independent is that eBay’s rivals may be more willing to use the payments service if it weren’t part of their competition. “Sometimes PayPal’s attachment to eBay can be a deterrent for eBay’s indirect competitors, ” RJ Hottovy, an equity analyst at Morningstar, told Reuters as long ago as 2012. “That’s the main reason why PayPal should be separated.”

So Carl Icahn likely does not expect to prevail here either, but the attention should certainly help bring focus to eBay and its prospects, which he probably again believes he may benefit from in any case.

In addition, and coming completely from left field, is the whole issue of internet payment systems using mobile smart phones, as iOS and Android methodologies are improving rapidly both in capabilities and security, something increasingly referred to colloquially as the “digital wallet”.

Beyond even this, there is the potential for radical disruption of all banking services using the internet if virtual currencies such as bitcoin should obtain more than a toehold. In this evolving context there is good reason to believe that PayPal itself has a chance to become a key player – whether inside or outside of eBay.

 

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