Icahn is Taking Aim at eBay Again

Carl Icahn spoke with Bloomberg Television’s Trish Regan today following an open letter to concerning his proposal to spinoff PayPal from eBay.

He singled out Marc Andreessen and Scott Cook saying they are not working in EBay’s best interest: “I think they’re respected. I think they’re accomplished. And I agree mostly they’re value-driven leaders. The trouble is they’re value-driver leaders for themselves, not for eBay and not for the shareholders they have a fiduciary obligation to.”

When asked why John Donahoe doesn’t want a spinoff, Icahn said, “[Donahoe’s] trying to attract really top people. Top people aren’t going to work for John Donahoe.”

Highlights include:


TRISH REGAN: Carl Icahn is taking aim at eBay (EBAY) again, and this time he’s using fighting words. In his latest letter to convince shareholders that eBay’s PayPal unit should be spun off, Icahn accuses the company’s board members of having conflicts of interest, writing, “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.”

Well we’re joined by the man himself who penned this letter, Carl Icahn. Carl, always interesting and good to talk to you. I know that you’ve really taken aim specifically at Marc Andreessen and Scott Cook. Why do you say these guys are not working in eBay’s interest?

CARL ICAHN: Well Trish, I’ve been through a lot of these over the last 30, 40 years. And I’ve said in the letter, and I mean it, I have never seen one as – as blatant as this. We’ve seen a lot of them, but it’s almost – if it weren’t sad, it would be funny. And this is one of the troubles with corporate governance in this country and why it’s sort of dysfunctional. Andreessen on the board of this company, who – the company stayed (ph) Marc Andreessen and Scott Cook, who we’ll talk about too, are two of the most respected, accomplished and value-driven leaders in Silicon Valley. And I sort of agree. I think they’re respected. I think they’re accomplished. And I agree mostly they’re value-driven leaders. The trouble is they’re value-driver leaders for themselves, not for eBay and not for the shareholders they have a fiduciary obligation to.

I’ll give you a number that stands out and is almost unbelievable. Skype was going to be sold by Donahoe, who I – I think is either naïve or just asleep at the switch here, and he was going to sell Skype, take it – take it public and take a big chunk for himself. Instead Andreessen on the board, who is greatly respected, basically he and Silver Lake buy most of the company, 70 percent. Now they buy it for a valuation of $2.7 billion. Now I never saw one like this, this big.

REGAN: So they bought it.

ICAHN: Eighteen months later they flip it to Microsoft, the people who buy it. Silver Lake and Andreessen flip it to Microsoft for $8.5 billion. In other words, in those 18 months the shareholders were robbed of $4.5 billion they could have kept. And it wouldn’t be so bad, you would just say well Dohanoe just didn’t – was asleep at the switch, but Andreessen made himself over $150 million on this. And Andreessen wasn’t that wealthy of a man then.

REGAN: Well they’re saying in response, Carl, “The board determined that because of these limited synergies it would be in the best longer-term interest of stock holders to explore a divestiture of Skype.” This is their response to your criticism (inaudible).

ICAHN: Well I got to tell you – I got to tell you, you’ve got to be a little (inaudible) myopic. If you have something for 2.75 that you’re selling it for and a year and a half later, not even, Microsoft buys it – I wonder if anybody really called Microsoft. We’re going to look into it. We’re – we’re putting out today – in fact you’re the first to hear this. We’re putting out a 220 request, meaning we’re looking for all the books and records. We’re going to thoroughly and diligently investigate whether or not they really did go out and explore everything or just listened to – listened to Andreessen.

Interestingly, right after it Andreessen stated around the time that – that they were doing this that Skype was atypical phenomenon, a breakthrough technology. His partner stated at the time pretty much that Skype is on the way to becoming one of the most important companies in the world. One can only – so I say one can only wonder what happened to Andreessen’s fiduciary responsibility to eBay and what happened to Donahoe? Where the heck is the corporate governance in these companies in our country? I will tell you this —

REGAN: Well they did say –

ICAHN: – that we as large shareholders of mutual funds have a responsibility to make sure really that the rest of the board and the CEO has – has a responsibility. Even with Chesapeake, which got a lot of PR and all, they never – they never sold something. They never – they never sold something – Aubrey never sold something at a $4.5 billion profit to one of his board members. It’s sort of unheard of. And now that I’ve really dug into it – I’ve been a little busy, as you know, with Forest the last couple of weeks. But now that I’ve really got into this, this is phenomenal. And I’m just saying it, and I hope the – I hope the larger shareholders just don’t sweep it under the rug like the company is trying to do. The company is saying —

REGAN: Do you think that some of these companies –

ICAHN: What’s that?

REGAN: Do you think some of these tech companies face a certain struggle or a more specific struggle in that some of the board members – as you try to recruit board members that have an expertise in the area, the reality is tech is somewhat of an incestuous community where people have a hand in this and that, and are they running the risk that they’re putting people in that have these conflicts of interest? Not in eBay, but in Silicon Valley in general.

ICAHN: You know something? I’m not going to go and comment on Silicon Valley. This is just bad form, bad – terrible corporate governance, and it’s bad anywhere. And then I’ll just tell you something else. And I said in the letter another grand slam for Andreessen coming right after this was his investment in Kinetix. Now listen to this one. Ebay sold Kinetix back to its founder for just $31 million in cash from (ph) $467 million. Just that, right? And one year later Andreessen goes in and at that price with that note and everything puts in $150 million. He doesn’t mention – he doesn’t go and tell – tell Dohanoe, why the hell are you selling this?

Get this. And they do this at a $1.5 billion valuation for this Kinetix. Just a year later, Kinetix was valued at $3.1 billion, giving Andreessen another paper gain of 100 percent. We don’t know what goes on under the rug. These are the things that stand out, and even that has been swept under the rug. And the company today – it’s almost insulting to shareholders. The company says, we do everything right. We explore everything.

And – and they say that – and they go and then they – and they say that Mr. Andreessen, Scott Cook, extraordinary insight, expertise, leadership, which is scrupulous in its government practices. And eBay’s board – eBay’s board – hey, I don’t even blame Andreessen and Cook. I want to talk about Cook for a second. Scrupulous in government’s practices and fully transparent with regard to its directors. Hey, if they’re fully transparent, I guess these guys are sort of blind. I just don’t understand how – how people – how – how they get away with it.

REGAN: Well so there’s four board seats coming up in April at the annual shareholder meeting. They’re coming up for renewal. You have two candidates from your shop that you’re proposing go on the board there. What happens if you don’t get your people, Carl? Will you stay in the stock? Will you —

ICAHN: It’s a sad commentary – I think it’s a sad commentary on corporate governance in general in this country. With the record we’ve had and the (inaudible) modest. We’ve been through Chesapeake and Forest and – and so many others, Motorola where we helped to clean up the situation. And – and I think a lot of people will say we saved thees companies or some of them. And you can go on for 20 other – it would be a sad commentary if – if – if we don’t get on the board I think. But anything is possible. I’ve been saying and (ph) railed against corporate governance, but this is the quintessential example.

And how you can allow this to happen and do nothing about it is basically a sad thing for this country. The market is high now, but I don’t think the market is high necessarily because companies generally are doing that well. I think it’s high because it’s – it’s a Bernanke-made market, which Bernanke was good and he made it happen, but there’ll be a day of reckoning. We still have a lot of pension funds still way under funded. And they’re going to be more under funded if you can take $4.5 billion away from the companies that you’re supposed to sue it (ph).

REGAN: So – so Carl, I spoke last week with the CEO of eBay John Donahoe and – and asked him about this potential spin off and his thoughts on it. I want to play for you an excerpt from that interview and get your reaction. Here it is.


JOHN DONAHOE, CHIEF EXECUTIVE OFFICER, EBAY: We look at how eBay and PayPal can be most successful, and the board and I continue to believe the best way is together, that eBay makes PayPal stronger. And it makes PayPal stronger by helping it grow faster. It provides more data, and it provides a strong financial foundation that ultimately make PayPal more successful as part of eBay than separate.


REGAN: So Carl, why do you think John doesn’t want to see a spin off?

ICAHN: Look, it’s the same type of thing that happened in Motorola. You have John Donahoe running a company. He’s trying to attract really top people. Top people aren’t going to work for John Donahoe, just as they wouldn’t work at Motorola for Zander. It’s just – when you get these top people – the only way we can get a man of the caliber of Sanjay Jha, who actually – I give him great credit for saving a company that was really going off a cliff. I worked extremely hard day and night to get a guy like Sanjay Jha.

And you know what he (ph) said? This was after Zander left. And Greg Brown was a great guy, I loved him and I’m still good friends with him, who was running Motorola. He said, I will not come to this company unless it’s going to be split and unless I – I – so we made him co-CEO. To Greg Brown’s credit, he was willing to do that and split these companies up. As a result, for a while Sanjay Rah did a great job. The company was in disarray. But – but the – the Motorola Mobility, and we were able to sell it. And let me tell you this. I have looked at a lot of these. I think I have pretty good instincts about it.

PayPal’s doing great. PayPal has a big jump, but PayPal I am very, very much afraid, even more than with Motorola actually, that PayPal will not be able to compete looking three, four years ahead with companies such as these behemoths. You never had – we never even, Motorola, had the kind of competition that you have from behemoths such as Samsung and Apple that are moving very swiftly in this area. Not to mention Visa, Mastercard. And John Donahoe has not a done great job at even eBay If you look at the numbers I show in my letter, he is way outclassed by Amazon. And Amazon’s another one coming to this business.

What you do is separate this company. If you want to do what’s good for shareholders, it’s really a binary thing. If you really want to see this company really go up in value, enhance value but more importantly enhance the productivity of a great company and make it great, you separate them. Bring in – you could bring in great talent then which you don’t have now because they’re not going to – I’ll just say it bluntly. You’re not going to have them working under the mushroom of eBay And – and to say that PayPal needs eBay is completely disingenuous.

REGAN: How big is your stake, Carl?

ICAHN: But if you don’t do it – but here’s the – here’s the thing. You could say, well, let’s wait a few years. What the hell? You don’t have the luxury of time in this one. So you can have a great company. You can have a much higher multiple for this company’s stock, which will attract talent and to a premium possibly when somebody wants to take it over. And that’s where this – that’s where this company should go.

That doesn’t mean – and – and they say that we are – we are short-term oriented, which is completely nonsense. I have a list of companies I’ve owned for 10, 15, 20 years. And again, at the risk of being immodest, doing this and being involved, IEP (ph) has the best record by far on Wall Street. Twenty-four percent return.

REGAN: Twenty-four percent return.

ICAHN: No, no. I mean that’s what we’re making annualized even with ’08, which was really bad. And – and – and right now with Forest, all you had to do was buy the stock when we went on a board, just bought it, and in the next – last five years and you made over 30 percent annualized return. And that tells you something.

That tells you when we get on a board – I could – I could promise you one thing. I could promise you one thing, and I will say this now. If I had been on that board and my representatives had been on that board, Andreessen wouldn’t have bought – wouldn’t have bought Skype. That $4 billion. We would have done a very thorough search, as we – as we did at Forest. Look at Forest. The stock was $35, now $97.

We would have done a – we would have been sure. If a Microsoft was waiting around the corner in a year and a half – I tell you it’s criminal almost. (Inaudible) criminal you go to jail criminal, but it’s terrible, reprehensible that this company should have been given to Andreessen and sold away. Just awful, okay?

And therefore you need – you say you’ve got a world-class board, but a world-class board for who? They should have been watching this. I’m not telling you that we’re experts in the area of – of – of technology. We’re not saying we are. But you got experts on the board for that. We’re experts in keeping the damn thing honest. And I say honest not in a detrimental word that you go to jail honest, but I’ll tell you something. I’m really worked up on it. I – I grew up on the streets of Queens. Let me tell you. Those guys wouldn’t have let something like this happen. Can you imagine Tony Soprano if somebody took $4.5 billion away from him in a year and a half (inaudible)?

REGAN: Tony Soprano, no. But hey, you’re no Tony Soprano.

ICAHN: We could use him on the board maybe.

REGAN: Let me quickly ask you just before you go. I know that you’ve been purchasing more stock. Can you give us a sense of how big your stake is right now in eBay?

ICAHN: I – in fact, I don’t have it in front of me. But we have over a billion dollars in it. I can look it up here. But I – I don’t know day to day what we have. But I will tell you this. We believe in it, but only if you can spend or sell or separate this thing – I don’t say sell – separate it off. Then it’s great. It’s binary. It’s scary if you can’t do that. That’s how I really feel about it.

REGAN: And you’re calling on shareholders –

ICAHN: I’ve got to tell you. The corporate – the coprolite governance is scary. And then look what Cook did. Hey, Cook runs – Cook has a billion dollars and he founded Intuit. They compete with us. And they say in their letter today it’s a little overlapping. Hey, we just bought Braintree. We’re trying to get in the processing business.

Who’s eBay fooling when they write these letters? They say it’s just a little bit of an overlap. Bullshit. There’s a huge – there’s an overlap. They just bought a company to get into this processing business more and more and more. And here you have Cook telling – telling them who (inaudible) Department of Justice still has a case against them for agreeing with Cook that they wouldn’t hire people away from – they wouldn’t compete and hire people away from Intuit. What the hell goes on there?

Anyway, look. We’re going to be in one heck of a brouhaha and – and we’ll see how it goes, Trish. But I think —

REGAN: No, it sounds like you could be gearing up for a pretty big fight here because John Donahoe has been pretty clear that he’s not interested in this. The board has looked at it before. So you’ll continue to persevere. Let me ask you, what happens if come April you don’t get your – your folks on the board? What – what do you do then? Do you stay in the stock? Are you here for the long term?

ICAHN: I think – I think if – if – I think we need – we need the people on the board to watch them. And just as importantly, we need the – we need to win the precatory. So that I believe even with this board, if you got a strong precatory the shareholders mandate that they want to see this split up or separated, I think this company is worth a great deal of money. If – if you don’t get that, I have to tell you unlike even in Motorola or any other one I’m in, I’m very – I am concerned that Google, Apple, as you know, and I do know Apple, are gearing up to get into this very, very lucrative business. PayPal has a jump now, but look what happened with BlackBerry and Nokia and Motorola and Eastman Kodak. So listen, I enjoy doing this. I don’t enjoy the fight. I’d rather have peace, but this to me is one of the most interesting ones I’ve been in because it’s so binary.

REGAN: There – there is a part of you in there, Carl, that I know does enjoy the fight at least a little bit. Thank you very much.

ICAHN: Come on. I’d rather – rather make love than war. Come on. You know that, Trish.

REGAN: That’s true. That’s true. Carl Icahn, thank you very –

ICAHN: I mean that in a very spiritual way.

REGAN: All right. Thank you very much for joining us today.

Video for viewing here.

Bloomberg Television

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