By Greg Bensinger
Carl Icahn is making money in Silicon Valley, but he isn't
making change.
After pursuing a spinoff of eBay Inc.'s PayPal payments unit
since January, the activist investor said Wednesday that he would
be satisfied with a partial sale of the division to the public.
"A 20% [initial public offering] of PayPal could allow for all
of the benefits of an independent PayPal, preserves all of the
benefits of keeping PayPal in house and could be structured so as
to be tax free to shareholders," Mr. Icahn said in a letter posted
to his website.
The change in tactics marks Mr. Icahn's second retreat at a
well-known tech company in as many months. In February, the
billionaire investor gave up a fight with Apple Inc. to boost its
share-repurchase program.
Not that his firm has suffered. Mr. Icahn generated hundreds of
millions of dollars in paper profits from his Apple investment. Mr.
Icahn also pocketed at least an $800 million profit from his stake
in Netflix Inc. after backing off a proposal that the video company
sell itself.
Through Wednesday, eBay shares had risen 5.8% since Jan. 22,
when Mr. Icahn disclosed his shareholding, outpacing the Nasdaq
Stock Market over that period. The shares fell nearly 1% Wednesday
to $57.30.
Since taking a roughly 2% stake in eBay, Mr. Icahn has
aggressively pushed for a spinoff of PayPal, nominating two
representatives to the board of directors and questioning board
members' objectivity. He said eBay was stifling PayPal's growth,
and hurting its competitiveness against current and potential
rivals, including Apple and Google Inc.
On Wednesday, however, Mr. Icahn said PayPal and eBay should
maintain close business ties, while forming independent boards.
"EBay's 80% ownership of PayPal, and a commercially advantageous
long-term contract between the two companies, would preserve any
potential synergies," he said.
In a statement, eBay said, "We're glad to see that Mr. Icahn now
seems to agree that a full separation of PayPal is not a good
idea."
A representative for Mr. Icahn said the investor wasn't
immediately available for comment.
Partial spinoffs aren't uncommon. Activist investor Daniel Loeb
last year pushed for Sony Corp. to spin off up to 20% of its
studio. General Electric Co. is planning a public offering of as
much as 20% of its North American consumer lending unit with the
goal of ultimately separating it completely.
Analysts have estimated PayPal as a stand-alone company would be
valued at about $35 billion, about half of eBay's market value.
PayPal, which allows people and businesses to exchange money
digitally, has been a significant growth driver for eBay and is on
a pace to eclipse its namesake online marketplace by sales.
While Mr. Icahn is backing off his spinoff request, his proposal
to separate the unit and his two nominees for the board will stay
on the ballot at eBay's annual shareholder meeting, likely next
month. In its proxy statement released earlier this month, eBay
rejected Mr. Icahn's board nominees and urged stakeholders to vote
against his proposal to carve off PayPal.
Broc Romanek, editor of TheCorporateCounsel.net and a former
Securities and Exchange Commission lawyer, said Mr. Icahn likely
can't amend his proposal. "What's in the proxy statement is what
shareholders will vote on," said Mr. Romanek. At any rate, the
proposal is nonbinding, he said.
Many activist investors have urged companies to sell or spin off
units. But Mr. Icahn's approach of seeking a shareholder vote on
such a move is rare. Institutional investors have been reluctant to
support such direct democracy.
Mr. Icahn and eBay have been warring with near-daily statements.
Mr. Icahn has focused his criticism on director Marc Andreessen,
who he said benefited at eBay's expense from the sale of
Internet-calling service Skype.
EBay, meanwhile, has stressed its rising share price under Chief
Executive John Donahoe. The company has said its directors have
recused themselves when they have potential conflicts of
interest.
David Benoit contributed to this article.
Write to Greg Bensinger at greg.bensinger@wsj.com
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