Carl Icahn backed off calls for eBay to spin out its fast-growing PayPal payments unit on Thursday, after the billionaire investor failed to drum up support from the e-commerce company's major shareholders.
Icahn withdrew his two nominees to eBay's board ahead of the company's annual meeting in May. But in a concession to the famously pugnacious activist investor, eBay added David Dorman, a founding partner of investment firm Centerview Capital Technology, as a 10th independent director.
The settlement caps a months-long acerbic war of words and marked a reversal for Icahn, who had accused eBay CEO John Donahoe of "inexcusable incompetence" and attacked the company's board repeatedly for shoddy governance.
He appeared to soften his stance yesterday, saying he found several of Donahoe's ideas "compelling" and looked forward to working with eBay's board.
In an interview with Reuters, Icahn said he might add to his eBay holdings. He added that while he supported a PayPal split in the near future, now was not the time.
"If they did the split-up now, yes, the stock would go up," Icahn said. "But I am looking at it and think, 'Why do it now?' I think the stock is very undervalued."
Icahn emphasised to CNBC that he "did not capitulate" to eBay. He and Donahoe will meet regularly to discuss strategic alternatives for PayPal, now eBay's fastest-growing business.
The billionaire told CNBC that his perspective shifted during talks with major eBay shareholders who did not to see eye to eye with him about a PayPal spin-off. They also threw their support behind Donahoe, Icahn said.
Icahn, who owns more than 2% of eBay, also said he greatly respected Dorman, a former AT&T CEO and current chairman of CVS Caremark. Dorman has known venture capitalist and eBay director Marc Andreessen for years.
"I am tickled pink to welcome my old friend David Dorman to the eBay board!" Andreessen said in a tweet.
Shares of eBay tumbled 3.2% to $54.08 at Thursday's close, during a sell-off in tech stocks that drove the Nasdaq Composite Index down 3.1%.
Going up against the valley
Icahn has successfully pushed for change at companies like Forest Laboratories, but has not always been able to replicate that success in the technology sector.
Earlier this year, he failed to push Apple to increase its stock buybacks significantly, though the iPhone maker did accelerate share purchases under an existing programme in February.
But he has also profited from his tech investments. When asked on Thursday if he had made money on his eBay investment this year, he said he would not argue that point. It's unclear, though, how much Icahn made on his eBay stake. Since eBay first disclosed his proposal on 22 January, the stock has ranged from $54 to a high just above $59 in March before sliding just below $54 late on Thursday afternoon.
With regards to Apple, Icahn said in January that he owned roughly $4 billion of Apple stock, after adding to his position several times during a very public campaign that began when he first disclosed a stake in the company on 13 August. At the time, Apple was trading at about $467; it's now slightly below $524.
PayPal was founded in the late 1990s and went public in 2002. It was acquired by eBay soon afterward for $1.5 billion. PayPal had 143 million active users at the end of 2013, up 16% from a year earlier.
Icahn's push to carve off PayPal emerged in January during an eBay conference call. Donahoe and board members, including founder Pierre Omidyar, have repeatedly said eBay had been funding PayPal's growth, and the two were better off together.
In the weeks after eBay disclosed Icahn's proposal, he wrote a number of open letters to fellow shareholders questioning Donahoe's abilities and calling corporate governance at the company among the worst he had ever seen.
But by mid-March, Icahn appeared to backtrack, calling on eBay to sell 20% of PayPal in an initial public offering, rather than do a full spinoff.
JPMorgan investment banker Jimmy Lee played a big role in clinching the eBay settlement. Icahn credited the star deal-maker with helping negotiate a ceasefire over a hectic weekend with considerable back and forth. Donahoe, who has been CEO since 2008, expressed relief that a potentially bruising and distracting proxy fight had ended.
Icahn told Reuters that he does not expect there will be another proxy fight with eBay after his year-long confidentiality agreement ends next year.
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