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Didn’t deliver

10 April 2014 By Robert Cyran

Carl Icahn has lost the battle of bluster at eBay. The activist investor is quitting his proxy fight now that the company is appointing one new director and agreeing to talk to him. Considering Icahn had “never seen worse governance” and was broadly right about the benefits of eBay separating its PayPal unit, that’s a retreat. But he may yet win the war.

Icahn went in hard, pulling no punches with his allegations of conflicts of interest on the part of some eBay board members. One was Mark Andreessen, whose venture capital firm’s participation in the $2.75 billion buyout of Skype from eBay carried the tang of conflict – although the company and Andreessen said that such matters were handled appropriately.

More importantly, Icahn’s push for a spinoff of PayPal makes financial sense, as Breakingviews has argued over the years. Though some of the online payment unit’s new customers come via eBay’s auction business, an increasing majority originates from outside its walls. Separating the two – perhaps partially to begin with – could boost PayPal’s growth prospects and its value.

The company came out swinging, too. Pierre Omidyar, eBay’s founder and holder of a stake almost four times as big as Icahn’s two percent, said the activist’s attacks were misleading. The company pointed to PayPal’s 40-fold growth in mobile payments over the past three years as evidence that eBay’s ownership helped rather than hindered the business.

Andreessen also counterattacked almost daily on Twitter. In one instance he pointed out that in connection with a different situation Icahn had said conflicts of interest were endemic in technology and healthcare boardrooms and easily managed through recusal.

The appointment of David Dorman, currently chairman of CVS Caremark, as another independent director at eBay and Chief Executive John Donahoe’s promise to talk to Icahn are small reward considering the gravity of the investor’s allegations. However, Icahn says he will continue pressing for the spinoff of PayPal.

The company doesn’t believe now is the time, but has not ruled it out for ever. More talk from Icahn – albeit behind closed doors – and heightened scrutiny from independent board members and shareholders alike could bring the day closer.



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