Icahn changes course, urges eBay to sell 20 percent of PayPal

Wed Mar 19, 2014 4:47pm EDT

Billionaire activist-investor Carl Icahn gives an interview on FOX Business Network's Neil Cavuto show in New York February 11, 2014. REUTERS/Brendan McDermid

Billionaire activist-investor Carl Icahn gives an interview on FOX Business Network's Neil Cavuto show in New York February 11, 2014.

Credit: Reuters/Brendan McDermid

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(Reuters) - Activist investor Carl Icahn on Wednesday called on eBay Inc to sell 20 percent of its PayPal payments unit in an initial public offering, a change in tack from his previous call for a complete spinoff.

Icahn in January called for eBay to hive off its fast growing PayPal business, arguing the unit is undervalued as part of eBay.

In recent weeks, Icahn has sent a series of open letters critical of eBay Chief Executive John Donahoe, the board, and corporate governance at the e-commerce company.

In his latest missive to fellow eBay shareholders, he said selling off only part of PayPal would retain the benefits of a stand-alone PayPal while maintaining the efficiencies of having eBay and PayPal together.

"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," eBay said in a statement, re-iterating its position that the two businesses are better off under the same umbrella.

As a public company, the payments firm should also command a higher valuation than as part of a larger corporation, shedding the "conglomerate discount," Icahn said. Its stock could then also be used to bankroll future acquisitions.

"Conducting a 20% IPO of PayPal - and creating two dedicated and highly-focused independent businesses - will provide the best opportunity for these businesses to remain competitive over the long-term," said Icahn, who owns more than 2 percent of eBay.

EBay bought PayPal for $1.5 billion in 2002.

The billionaire Icahn said eBay and PayPal could enter into a long-term commercial contract that does not require eBay to own all of PayPal, to preserve their ties.

He also said PayPal has a significant opportunity to offer new services such as check writing and direct deposits.

A standalone PayPal and eBay would benefit from having their own independent management teams, Icahn argued.

PayPal needs to be independent to compete in the mobile payments industry, Icahn said, repeating an assertion he has frequently made in a series of open letters in recent weeks.

(Reporting by Phil Wahba in New York; editing by Andrew Hay and Tom Brown)

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Comments (3)
NetSales wrote:
Paypal is in all reality a global bank which straddles every frontier on the planet. Not only are they regulated only by their own business interests, but they impose their own set of rules and regulations to your money and you have absolutely no recourse, no appeal process, no hope in hell, when they decide to take your money away from you, as is happening more and more.

It’s not enough for the Paypal/Ebay conglomerate to milk users of outlandish fees which when tallied up especially in foreign currency conversion transactions can exceed 10% of the total sale. They have to carry on their business based on a platform whereby they exercise ultimate power over your money, and that is clearly unacceptable. The argument that you can deal with a competitor is the same monopolistic talk we’ve heard from Microsoft for decades. There is no effective competitor as you either deal with Paypal/Ebay or you are stuck with junior league fudge factories.

That’s why it’s time that Paypal/Ebay be split up, just like Ma Bell was turned into lots of Baby Bells a couple of decades ago. Let them compete in the open marketplace and offer reasonable fees and considerate customer treatment. In April 2008, eBay and Paypal (which in 2002 became a wholly-owned subsidiary of eBay) began to hold buyer payments from sellers in order to implement a 21-hold policy on funds. This hold was also placed for sales where it is clearly stated in the auction listings that (especially for custom and made-to-order items) shipping is within a certain (but not immediate) time frame.

Not only are sellers, who state their selling parameters clearly within their listings, being penalized for not having “ship same day” items, but Paypal stands to profit from interest on funds that do not belong to them.

For at-home, small business owners, this unscrupulous practice by both eBay and Paypal (which are one in the same) is an economic hardship. Sellers are expected to ship items to buyers without, essentially, being paid for their items. The buyer has their items long before (up to 21 days) a seller receives payment. During this time, selling and store fees accrue by eBay and expect to be paid even when the seller’s fees are tied up. If tied to a Paypal account, eBay will still initiate a withdrawal, which instead of coming from an available Paypal balance will now come from personal funds (checking account or credit card).

eBay has initiated “options” to avoid the holds, which, again for custom-work sellers, does not work. For others, it requires the purchase and printing of UPS and USPS labels and postage via the internet and personal printers to prove shipping, which is not only time consuming but expensive and environmentally wasteful.

Clearly, eBay and Paypal are preying on the small business owner to earn interest on funds that do not belong to them, in order to cover their own losses in an economic downturn.

Because eBay and Paypal and subsidiaries, they can apparently make up their own rules that are not (and would not) be practiced between any other merchandise and banking venue.

Mar 19, 2014 2:51pm EDT  --  Report as abuse
AndreLeonard wrote:
Leave it to Carl to tell someone else how to run their business.

Mar 19, 2014 5:08pm EDT  --  Report as abuse
wallynm wrote:
If Icahn wants it done then it is bad for ebay. He has never started a company. He drove TWA into the ground and bankruptcy and destroyed the retirement for thousands of TWA employees. If Icahn is for it I am against it.

Mar 19, 2014 10:25pm EDT  --  Report as abuse
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