By Liz Hoffman And Lukas I. Alpert
Carl Icahn thinks that eBay Inc.'s PayPal and Gannett Co.'s
publishing business will be prime takeover targets when they soon
become independent. And he is trying to make sure nothing gets in a
suitor's way.
In a corporate-governance double punch that began this week with
a pact with eBay and a missive Thursday to Gannett, the billionaire
joined other activist investors pushing back against a recent trend
in which spun-off companies are cloaked with tough takeover
defenses.
EBay agreed to a set of governance rules for its PayPal
electronic-payments business that leaves open the door to corporate
suitors. Mr. Icahn urged Gannett, which plans to separate its
publishing business from its broadcasting business this year, to
establish similar rules to leave both pieces wide open to a
potential sale.
"The point is, the company owes the right to its shareholders to
determine if they want to be sold if somebody wants to buy it," Mr.
Icahn said in an interview. "The shareholders should decide, not
the board." Mr. Icahn said he would seek two Gannett board
seats.
Gannett's nonexecutive chairman, Marge Magner, said: "We are
surprised by Mr. Icahn's aggressive actions, including his threat
to run a proxy contest to force wholesale changes in Gannett's
corporate governance and dictate the corporate governance of a
company whose governance profile has yet to be determined."
EBay Chief Executive John Donahoe said Wednesday that the
agreement with Mr. Icahn "reflects our alignment on separation and
our shared belief in the benefits of avoiding distractions."
Mr. Icahn's fight comes as the number of corporate spinoffs has
surged. Activist investors, sensing a chance to get their foot in
the door early, are setting their sights on these fledgling
companies, data show. And some, like Mr. Icahn, who already own
stock in the parent company, want the newly independent business to
be open to takeover bids. Some corporate parents are responding by
giving spinoffs, in which they themselves often continue to hold a
stake, tough defenses that could protect against activist
interference or hostile takeovers.
Some observers said the defenses are justified. "With activists
prowling everywhere these days...it's not unreasonable to give
brand-new companies a little breathing room," said Guhan
Subramanian, a professor at Harvard Law School and Harvard Business
School.
U.S. companies announced a record 65 spinoffs in 2014, according
to FactSet, whose data go back to 1998. Companies like
Hewlett-Packard Co. and Symantec Corp. have announced plans to slim
down, and others, including DuPont Co., are under shareholder
pressure to do so.
About 55% of 2014 spinoffs stagger their director elections,
making a board coup a yearslong effort. Just 10% of S&P 500
companies have such a structure, according to FactSet. Nearly
two-thirds of 2014 spinoffs don't give investors the right to call
special meetings, versus about 40% of the broader index. And
spinoffs also are more likely to set high voting thresholds to
effect corporate changes of all stripes.
Mr. Icahn isn't the only one pushing back. This month, activist
investor Trian Fund Management LP attacked DuPont for giving its
coming spinoff, a performance-chemicals unit called Chemours,
protections that Trian said weren't friendly to shareholders.
DuPont has said Chemours's governance is in line with other
spinoffs and designed "to protect the interests of all shareholders
and provide stability during the initial period of being a new
public entity."
Mr. Icahn owns a 6.6% stake in Gannett, publisher of USA Today,
and said he plans to nominate two directors to run for its board at
its 2015 annual meeting, former Bertelsmann Entertainment CEO
Michael Dornemann and Icahn employee Courtney Mather.
Mr. Icahn first disclosed his ownership stake in Gannett in
August, shortly after the company had announced its plans to split.
In a regulatory filing at the time, Mr. Icahn said that he felt the
company was undervalued and he had begun accumulating shares to
force a split, but the company beat him to the punch.
Gannett's shares have fallen 2.5% since the day before the
announcement. On Thursday, the shares rose 70 cents, or 2.2%, to
$32.06.
Gannett has said it expects to complete the split this year.
Gannett will join a host of media companies that have or will split
off print-publishing operations from television and digital
operations. Gannett greatly expanded its broadcast operations with
its $1.5 billion acquisition of broadcaster Belo Corp. last year
and has continued to bulk up its digital properties.
David Benoit contributed to this article.
Write to Liz Hoffman at liz.hoffman@wsj.com and Lukas I. Alpert
at lukas.alpert@wsj.com
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