(February 27, 2014) — Activist investor Carl Icahn sparked war with eBay this week, publicly accusing its board of weak governance and proposing a breakup between the e-commerce company and PayPal.
Icahn—dubbed a “corporate raider” for his hostile takeover of TWA in 1985—has revealed that he owns a 2.15% stake, worth $1.62 billion, in eBay. He issued three open letters accusing two of its directors of conflicts of interest and CEO John Donahoe of “ineptitude.”
“We believe that in any sane business environment these directors would simply resign immediately from the eBay board, either out of pure decency or sheer embarrassment at the public exposure of the extent of their self-serving activities,” Icahn wrote.
According to the letters, Director Marc Andreessen engaged in several transactions that led Icahn to question his loyalty to eBay. In 2009, Andreessen and his investor group “preempted a planned Skype IPO,” buying 70% of its shares for less than what eBay paid for it. Andreessen is said to have secured nearly $4 billion in profit from this deal.
The director was also accused of sitting on boards of direct competitors of eBay and PayPal, including Boku, Coinbase, Dwolla, Jumio, and Fab.
Scott Cook, another board director and member of the corporation’s governance and nominating committee, was also targeted in Icahn’s statements. Cook is the founder, former CEO, and a current board member of Intuit, a software company that makes programs such as Quicken and TurboTax.
“Intuit and PayPal are direct competitors in payment processing as Intuit Go-Payment provides virtually the same capabilities to merchants as PayPal Here,” Ichan wrote. “In our opinion, having Mr. Cook on the board while planning PayPal’s future is akin to having Pete Carroll, coach of the Seattle Seahawks, sitting in when the Denver Broncos were constructing their game plan for the Super Bowl (then again, maybe he did).”
However, eBay was firm in its response, stating that the overlap between Intuit and eBay was minimal and open, “within the safe harbor for interlocking directorates.”
Cook also has a pending lawsuit from the US Justice Department (DoJ) for participating in an “expansive no-solicitation and no-hire agreement” of former Intuit employees. eBay petitioned this claim and said “this is old news; any restrictions ended years ago, and Intuit historically had not been a source of talent for eBay.”
The final criticisms came against eBay’s CEO, President, and Director John Donahoe. Icahn accused him of myopic stewardship and ineptitude, and blamed him for the company’s poor performance.
“The CEO seems to be completely asleep or, even worse, either naïve or willfully blind to these grave lapses of accountability and stockholder value destruction,” Icahn wrote.
According to the letters, eBay stock returned 75% from March 31, 2008 to January 10, 2014, while Amazon, Visa, and MasterCard returned 462%, 271%, and 285%, respectively.
To alleviate shareholders of allegedly “dysfunctional corporate governance” and steer eBay towards success, Icahn proposed a separation of the company and PayPal. He claimed the move would inspire innovation, effective building of different business platforms, and recruitment of top talent.
Pierre Omidyar, eBay’s founder and board chairman, remained supportive of the “integrity of [the company’s] directors,” and said the board has decided the breakup of eBay and PayPal would not serve its shareholders’ best interests.
Icahn is said to have nominated two of his own employees to eBay’s board and challenged the company to an “honest, accurate debate” on CNBC.
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