Carl Icahn has been pressuring eBay to spin off PayPal into a separate company since January, and for the first time eBay faces a contested proxy (the issues on which shareholders vote, such as board nominations). eBay said its board has considered a PayPal spinoff but has determined the time is not right, saying ecommerce and payments go together.
On Wednesday, Carl Icahn put forth a new proposal in which he suggests eBay conduct an Initial Public Offering (IPO) of PayPal, selling 20% to the public. “eBay would retain 80% of PayPal with control. Before the transaction is consummated the companies could enter into a long-term, commercially viable contract, preserving all synergies.”
The new proposal is a major concession for Icahn. He explained, “This type of relationship is customary in partial IPOs and would be particularly important for eBay as currently, outside of PayPal, there does not exist a global payment processing solution competent enough to service eBay’s users. Luckily for PayPal, competitors such as Google, Apple and many others do not yet have the same comparable scale and product offerings.”
eBay responded to Carl Icahn’s proposal on Wednesday reiterating its position that “PayPal and eBay are better together.” In a press release, eBay said, “A partial separation of PayPal is not a new idea, and we’re glad to see that Mr. Icahn now seems to agree that a full separation of PayPal is not a good idea.”
Icahn said PayPal could expand product offerings, but “Under the current eBay leadership, PayPal has actually removed beneficial services to customers such as providing interest on PayPal deposits” – an issue sellers certainly noticed back in 2011.
Icahn and eBay have been going back and forth, trading barbs – Icahn accused eBay’s board members of conflicts of interest and has demanded eBay hand over documents related to the Skype acquisition, and eBay has called Icahn a liar.
In Wednesday’s letter to eBay shareholders, Icahn pointed to what he called significant “dissynergies” – “for example, we believe a standalone PayPal would be more able to pursue potential strategic partnerships with other industry leaders, such as Visa, MasterCard, Google, Facebook, Alibaba, etc., that could solidify PayPals long-term relevance.”
eBay responded stating, “PayPal has not been held back by eBay Inc. In fact, as part of eBay Inc., PayPal has built relationships with VISA, MasterCard, American Express and Discover, with the world’s leading point-of-sale providers, and with leading global companies such as Facebook and Samsung.”
Icahn has been bringing attention to eBay CEO John Donahoe’s performance record. Things are only likely to heat up more as eBay’s annual meeting draws near.