By Phil Wahba and Nadia Damouni
Jan 22 Carl Icahn has taken a stake in eBay Inc
and is proposing a spin-off of the its fast-growing
PayPal division, but the e-commerce giant rebuffed the overture,
setting the stage for a potential battle with the activist
EBay, which bought PayPal for $1.5 billion in 2002 and has
considered hiving off the multibillion-dollar payments service,
argued on Wednesday that the business would lose synergies with
the overall e-commerce business as an independent unit.
"First, eBay accelerates PayPal's success. Second, eBay data
makes PayPal smarter. And third, eBay funds PayPal's growth,"
Chief Executive John Donahoe told analysts on a post-results
Some analysts, however, said that operating as a separate
entity would encourage other online retailers to adopt the
service and help retain key executives, with a spinoff that
could unlock the value of a service that grew 19 percent during
the holiday quarter.
Shares of eBay, which also reported earnings per share a
penny above Wall Street expectations, jumped as much as 12
percent. The stock was up 7 percent at $54.41 after hours.
Donahoe said he had heard Icahn out but rejected his
proposal. He added that the company intended to step up
investments to safeguard the market position of the thriving
payments service, which may exert pressure on margins.
Donahoe told Reuters in an interview on Wednesday that his
company started seeking advice from its financial adviser,
Goldman Sachs, five days ago, following Icahn's letter to eBay.
Icahn's proposal comes as the billionaire investor is urging
Apple Inc to share more of its $146 billion cash pile
with shareholders. The activist is demanding Apple do an
additional $50 billion in share buybacks, which the company is
advising shareholders to reject.
Icahn did not respond to requests for comment.
"I expect it to be a battle," BGC Partners analyst Colin
Gillis said, citing eBay's longstanding opposition to a PayPal
spinoff. "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.
PayPal started life as an independent company, founded in
the late 1990s by technology entrepreneurs including venture
capital investor Peter Thiel.
PayPal battled with eBay for supremacy in the then-emerging
online payments market. But soon after it went public in 2002,
eBay acquired PayPal for $1.5 billion. Today, its growth
outpaces the rest of the company and it accounts for a large
chunk of eBay's overall stock market value.
The unit has been a key driver of eBay's share value, as the
company struggles to compete with larger rival Amazon.com Inc
Analysts have estimated that PayPal, which already yields 40
percent of the company's revenue, may account for as much as
half of the corporation's market value, which now stands at
about $70 billion.
Icahn is known for decades of strong-arm tactics including
proxy fights against major corporations. This month, he bought
shares and derivatives giving him a 0.8 percent economic
interest in eBay, and also nominated two of his employees to the
eBay board. Those employees were not identified.
"Our directors have deep experience in the technology and
financial services sectors, and a track record of value
creation. This is the standard by which all future candidates
will be assessed," Donahoe said on the call.
The eBay board includes prominent Silicon Valley venture
capitalist Marc Andreessen, Ford Motor Co Executive
Chairman William Ford Jr., and eBay founder Pierre Omidyar.
Donahoe, who spoke briefly to Icahn last week, told Reuters
that he did not know Icahn's nominees and that the activist
investor had not put forth any other proposals.
Revenue at eBay's PayPal division rose 19 percent during the
holiday quarter, fueled by the growing use of mobile phones to
shop. PayPal's total payments volume, a gauge of how much it is
used to complete a transaction, rose 25 percent to $180 billion
worth of transactions.
Companywide, revenue rose 13.5 percent to $4.53 billion for
the quarter ended Dec. 31.
For 2014, eBay forecast revenue of between $18 billion and
$18.5 billion, while analysts expected a forecast of $18.5
billion, according to Thomson Reuters I/B/E/S.
Net income for the fourth quarter was $850 million, or 65
cents a share, up from $751 million, or 57 cents a share, a year
earlier. Excluding some items, eBay earned 81 cents per share, a
penny better than expected.
On Wednesday, the company also said it had authorized an
additional $5 billion in stock buybacks.