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eBay's Letter to Shareholders Regarding Carl Icahn's Breakup Proposal
Posted by: Grass Hopper (IP Logged)
Date: March 26, 2014 09:21AM
March 24, 2014
Dear Fellow Shareholder:
Our company is a global commerce and payments leader operating in a rapidly changing landscape. Technology is creating a commerce revolution. The distinctions between online and offline commerce are disappearing. Mobile commerce is shifting consumer behavior. And retailers and brands of all sizes are adapting and innovating to engage consumers who have unprecedented choice in how they shop and pay. Scalable, flexible, integrated digital payments and commerce platforms are competitive advantages in this dynamic environment. That’s why we believe eBay Inc. is well positioned to lead and innovate globally, drive long-term growth and deliver sustainable shareholder value.
eBay’s Board of Directors and management team are singularly focused on doing just that – driving growth and increasing the value of your eBay investment over the long-term.
At our 2014 annual meeting, you have important choices to make. Activist investor and eBay shareholder Carl Icahn (Trades, Portfolio) has submitted a non-binding proposal to spin off PayPal into a separately traded public company. He also has nominated two of his employees for election to eBay’s board.
We have evaluated carefully Mr. Icahn’s proposal to spin off PayPal. We do not support it. Mr. Icahn’s proposal is not a new idea, and Mr. Icahn himself recently backed away from supporting his own proposal. The eBay Inc. Board of Directors has previously considered this idea closely. We also have had many discussions with shareholders. Our board is in unanimous agreement that neither Mr. Icahn’s breakup proposal nor his nominees are in the best interests of eBay’s shareholders. The eBay Board of Directors unanimously recommends that shareholders vote “AGAINST” Mr. Icahn’s breakup proposal and “FOR” all four of the Company’s experienced and highly qualified director nominees: Fred Anderson, Edward Barnholt, Scott Cook, and John Donahoe.
PayPal and eBay are better together. That’s been true for the past five years, during which time PayPal and eBay have generated a 441% increase in share price for our investors, significantly outpacing NASDAQ and the S&P. And we continue to believe today that PayPal and eBay together is the best path to creating sustainable shareholder value in the future. In today’s competitive environment, the advantages of PayPal and eBay together are more important than ever.
The eBay Story – Creating Value for Shareholders
Since our founding in 1995, eBay has been a leading global innovator in online commerce and digital payments, and the company has continually evolved to create and capitalize on technology-driven changes affecting the future of commerce and how consumers shop and pay. The board has engaged in constant dialogue with management about eBay’s strategic direction and has a clear track record of making the right decisions for eBay and its shareholders.
eBay has delivered phenomenal growth, resulting in substantial value creation for our shareholders.
Through our eBay Marketplaces, PayPal, and eBay Enterprise business units, our company has built a highly competitive portfolio of leading global commerce and payments capabilities. In 2013, enabled commerce volume across our platforms reached $212 billion, up 21% from the prior year.
Payments is an integral part of commerce. Technology, led by mobile, is creating a convergence of payments and commerce capabilities across our industry. eBay Inc. is a leader in this evolving competitive environment. And since its acquisition in 2002, PayPal has thrived as part of eBay Inc., becoming a global leader in digital payments.
PayPal and eBay together have enabled us to drive mobile commerce and payments leadership, a competitive strength given the role mobile is playing in altering the commerce landscape. In 2009, we launched an aggressive push into the nascent mobile commerce space. eBay mobile was an early leader, and the eBay mobile app has been downloaded more than 186 million times since launch. In the three-year period 2010-2013, PayPal’s mobile payments volume increased 36 times. Today, our company is a clear leader, with eBay reaching $22 billion and PayPal hitting $27 billion in mobile commerce volume in 2013.
As we compete in the $10 trillion commerce market, we believe that the opportunity for dramatic growth for eBay and its shareholders is larger than ever before. Some of the most important trends in commerce – including online/offline convergence, mobile, social, data, the app economy, evolving payment systems – align with eBay assets and position us well for the future. Our 2013 performance, including 14% year-over-year revenue growth, 15% year-over-year non-GAAP earnings per share growth and $3.7 billion in free cash flow, demonstrate we are on the right path.
The eBay Board – The Right Team to Lead eBay into the Future
We’ve been able to build this thriving business thanks to our high quality management team and board. This is a group with deep experience in technology and financial services, a track record of tremendous value creation and significant ownership in the company. They have unrivaled experience and strong track records in and outside of eBay. And each has helped lead meaningful shareholder value creation during their tenure.
This exceptional board of entrepreneurs, executives and investors has a track record of taking decisive action, leading 37 acquisitions at eBay since 2008 as well as value-enhancing transactions as executives at their respective firms. The board has built a deep and strong management team that has driven eBay’s consistent growth in revenue and profitability and that continues to deliver sustainable value to eBay shareholders.
The board has supported the management team in our turnaround and growth strategies. Over the past several years the board and management:
At the same time, we’ve invested in new capabilities for the Marketplaces business. And we have moved aggressively to leverage PayPal’s integration with eBay to expand PayPal’s reach to millions of online retailers and to offline transactions. PayPal remains one of the fastest growing elements of the company – which helps explain why others are targeting the payments business but are far behind PayPal.
eBay and PayPal – Better Together
Our shareholders and our customers are best served by keeping PayPal and eBay together. No other payments competitor has achieved PayPal’s success – because no other competitor has had a commerce platform like eBay.
Why We Are Better Together:
Our commerce and payments businesses reinforce and support each other. Taking them apart would destroy value by reducing their considerable synergies, which cannot be easily replaced by arm’s length commercial agreements. Tightly integrated with eBay, PayPal can grow faster and more profitably than it would as a standalone company. Adoption and use of PayPal on eBay enables innovation and growth off of eBay. For example, eBay delivers about 30% of PayPal’s new users at virtually no cost, more than 30% of PayPal’s revenues and approximately 50% of PayPal’s profits. PayPal’s growth and leadership in mobile payments has occurred precisely because of this strong base of PayPal users on eBay.
As the commerce landscape evolves, we see even stronger synergies between PayPal and eBay. New users in the BRIC and emerging markets are an exciting part of this changing landscape. When PayPal expands into a new market like Russia or Brazil, established eBay customers provide PayPal a strong foundation to build a vibrant domestic business. Offline commerce is another new frontier for both eBay and PayPal, and moving offline together creates more powerful competitive advantages. Both businesses benefit from strong investment synergies in key areas of innovation, and the mobile-enabled commerce and payments markets remain vast and exciting opportunities.
We do not have a monopoly on good ideas. We know that. And we understand that we are operating in a dynamic environment. But Mr. Icahn is proposing nothing new. We have tested the idea of separation. Our board regularly reviews our businesses to determine the best course of action for the future. We have come to the conclusion that keeping PayPal as part of eBay is the right plan for today. However, as we have always done, we will continue reviewing the strategy and structure of our company with the best long-term interests of our shareholders clearly in mind.
Mr. Icahn has nominated to your board two of his employees, Jonathan Christodoro and Daniel Ninivaggi, who have no relevant leadership or operational experience in technology. Both are overboarded under eBay’s policies – both of them are already on four public company boards and Mr. Ninivaggi is a Co-CEO of one of Mr. Icahn’s controlled companies. Mr. Christodoro is a recent graduate of business school with a few years of experience on Wall Street. He joined all four of his boards following Icahn pressure on those companies, and has less than one year on average of experience on each board he has served on. Both individuals are contractually bound to Icahn affiliates and are required to hold business opportunities and investments in a fiduciary capacity for the benefit of those Icahn affiliates, preventing them from being truly independent directors. Mr. Icahn appears to have put little consideration into his selection of nominees to the eBay board, and we encourage shareholders to reject his unqualified nominees.
Rather than debate the merits of his proposal, Mr. Icahn has launched an aggressive media campaign to attack the management and directors of eBay. His distorted attacks, despite being the centerpiece of his campaign, have been disproven by the facts. Mr. Icahn has a long history of using personal attacks as a means to his own ends. We believe his public attacks have been counterproductive and are an attempt to distract attention from eBay’s long track record of delivering results for eBay’s shareholders.
More recently, Mr. Icahn has backed away from his proposal to spin off PayPal into a separately traded public company and from his arguments that PayPal would be more successful as a standalone company. He has announced a “new” idea – a carve-out IPO of PayPal. We’re glad to see that Mr. Icahn now seems to agree that a full separation of PayPal is not a good idea.
We are fully committed to always acting in the best long-term interests of our shareholders. We ask ourselves: Will a spin-off into a separately traded public company or even a partial spin make PayPal more competitive?
Will it accelerate growth? Will it be possible without distracting PayPal’s innovation and execution at a critically important time? And, importantly, will it create sustainable value for shareholders over time? Today, we believe the answer to these questions is no – not now. PayPal and eBay are better together. In the future, our board will continue to evaluate all strategic options and make the right decisions for shareholders.
The bottom line is that Mr. Icahn is wrong about the quality of our board and he’s wrong about the best course today for PayPal. We oppose his unqualified board nominees, and we recommend that shareholders vote against his non-binding proposal to separate PayPal from eBay.
YOUR BOARD OF DIRECTORS REMAINS COMMITTED TO SERVING THE INTERESTS OF ALL EBAY SHAREHOLDERS – PLEASE VOTE THE WHITE PROXY CARD TODAY
Your board seeks your support electing the Company’s four experienced nominees -- business leaders in technology with track records of delivering substantial shareholder value who have helped build the eBay success story -- on the WHITE proxy card: Fred Anderson, Edward Barnholt, Scott Cook, and John Donahoe. Please discard any proxy card sent to you by Mr. Icahn.
We are highly confident that eBay will remain a global leader in a connected commerce world. We believe PayPal will grow faster as part of eBay, and that eBay grows faster having PayPal. eBay’s strong positioning will benefit our customers, our employees, and you, our stockholders.
If you have any questions or need assistance voting eBay’s WHITE proxy card, please contact D.F. King & Co., Inc., which is assisting eBay, toll free at (800) 269-6427. Holders can find additional information regarding the 2014 annual meeting at [bettertogether.ebayinc.com].
On behalf of your Board of Directors, we thank you for your continued support.
Chairman of the Board
Lead Independent Director
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