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Carl Icahn Will Fail… But He’s Not Totally Wrong

March 06, 2014 | About:

After failing (for now) to convince Apple to return its massive cash reserves to shareholders, Carl Icahn (Trades, Portfolio) has turned his activist mind to eBay (NASDAQ:EBAY) launching a full blown offense on its executives and board. If you have not yet heard about it, I highly recommend that you take a look at some of these posts:

-Icahn says eBay corporate governance is worst ever

-eBay is worst company I have ever seen

It’s been entertaining to see and I do understand that he’s trying to get some changes made. It looks like he thinks the only way to get these things done is to go ahead with a massive public attack. If I understand well, the main points he’s arguing are:

-The board and CEO is doing a terrible job

-Paypal should be spun off

-The board is corrupt

I basically agree 200% with one of these statements and only mildly with the 2 others.

Clearly, the company has been executing poorly. Is it “the worst managed company in the world”? Of course not… but it’s well below average. Not only has its main marketplace suffered but it’s also clear that while Paypal, its most valuable asset, has increased revenues and income, its actual product is not as good as competitors. It has kept its market share mostly because it’s the default payment method and that is a powerful thing. However, that won’t last forever and the fall could come much sooner if Paypal does not get its act together. Nimble startups such as Stripe are moving quickly and could eventually gain enough traction to fraction the payment space. Paypal remains a clunky product that has poor customer service and is a poor experience for a large portion of users. I do still think that eBay is remains a buy at these levels because it will take much longer than expected to take out Paypal but the company does seem like it’s doing a poor job of working the company’s transition to the 21st century.

I do understand that spinning out Paypal could lock out some value for EBAY shareholders and there’s also an outside chance that it would help the company innovate more, etc. But to me, spinning out would make the most sense if there was little integration between Paypal and the rest of eBay which is not the case.Should the company be renamed Paypal to give it the focus it deserves? Perhaps.. but who really cares?

Saying that the board has members that conflicts of interest might be true to some extent but in this world where companies like eBay, Apple, Facebook and Google are doing so many different activities it makes little sense to expect to have board members that have no conflicts at all. Marc Andreessen is a venture capitalist that I do follow and while I understand that he also sits on boards of potential eBay competitors, I would still give him the benefit of the doubt but I also think he’s the type of guy that brings a critical perspective to eBay. One big issue with the company is that they have not evolved very much and while it’s a challenge to know who should be blamed, I’d argue that he would be one of those to know what the company should evolve into. One counter-argument I’d bring is that it is true that Daniel Loeb shaking up things at Yahoo does seem to have worked incredibly well so giving it a shot might not be the worst idea in the world.

Disclosure: Long eBay (NASDAQ:EBAY) but closing the position this morning

Rating: 2.5/5 (2 votes)


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