EBAY CEO John Donahoe is stepping up his offence against activist Carl Icahn, a sign of the rising stakes in his effort to keep from splitting off the e-commerce company’s PayPal business.
Mr Donahoe, who is combating Mr Icahn’s calls to spin off the payments unit, has consulted with some of the investor’s earlier targets, Apple CEO Tim Cook and Netflix CEO Reed Hastings, for advice. He is working with Brunswick and Goldman Sachs, and has met the media as well as large institutional investors to argue that PayPal belongs with eBay.
Along the way, eBay and Mr Icahn’s feud has devolved into one of the more acrimonious Silicon Valley tussles, with technology luminaries including LinkedIn founder Reid Hoffman and eBay directors Marc Andreessen and Pierre Omidyar jumping into the fray.
A separation from PayPal would rob eBay of its fastest-growing business, which contributed 42% of the company’s $16bn in total revenue last year. Yet if PayPal were independent, Mr Icahn has said it would attract a "number of bidders willing to pay a large premium."
"eBay has certainly been aggressive in their responses to Carl," said a New York-based MD at business advisory firm FTI Consulting, Steven Balet. "Carl doesn’t go away very quickly."
The dispute, which is playing out on social media and in near-daily press releases, contrasts with the more courtly behaviour in other recent activist-versus-technology company flare-ups, including Mr Icahn’s duels with Apple and Netflix and Elliott Management’s targeting of Juniper Networks.
A spokeswoman for California-based eBay, Amanda Miller, said: "When statements are made about our company that are factually inaccurate and misleading, then we owe it to our shareholders to set the record straight." The company has said eBay provides PayPal with data and a strong financial foundation that sets it up for success.
Mr Icahn, who disclosed a 2.2% stake in eBay in January and has become its seventh-largest shareholder, said in an interview that he intends to keep the fight going. "Their response has essentially been to say ‘we don’t want anyone raining on our parade — we’re the great eBay’," the 78-year-old said. "I never walk away unless there’s a reason to walk away."
The dispute has ramped up since last month as it has become personal. Late last month, Mr Icahn broadened his criticism of eBay to Mr Donahoe and the company’s board. The investor targeted Mr Andreessen and Intuit co-founder Scott Cook, alleging the two were unfit to be eBay board members due to conflicts of interest.
In calling out the directors, Mr Icahn took aim at the clubby world of Silicon Valley, in which executives and venture capitalists often sit on boards of companies that they may compete or transact with through investments or other entities.
Having Mr Andreessen and Mr Cook on eBay’s board is tantamount "to having Pete Carroll, coach of the Seattle Seahawks, sitting in when the Denver Broncos were constructing their game plan for the Super Bowl", Mr Icahn said in a shareholder note.
Mr Icahn has focused on Mr Andreessen, alleging the venture capitalist unduly profited from eBay’s sale of videoconferencing company Skype in 2009. At the time, an investor group led by Silver Lake Management and including Mr Andreessen’s venture firm bought a majority stake in Skype, valuing the company at $2.75bn. In 2011, Microsoft bought Skype for $8.5bn.
"With eBay it’s almost like the Politburo in Russia, where Stalin would get what he wanted from the Politburo and the Politburo would have their own opportunities to take advantage of their positions," Mr Icahn said in the interview.
Mr Andreessen has said he "categorically denies" the accusations and that he recused himself from all deliberations on the Skype transaction. He has said eBay shareholders re-elected him with more than 99% of the vote. Mr Andreessen also questioned Mr Icahn’s judgment in the past, including the activist’s dealings with Ivan Boesky, who pleaded guilty in a 1980s insider-trading case.
A spokeswoman at Mr Andreessen’s venture firm Andreessen Horowitz, Margit Wennmachers, declined to comment. Bloomberg, the parent of Bloomberg News, is an investor in Andreessen Horowitz. Intuit’s Mr Cook did not respond to a request for comment.
"Both sides have personalised the issues," said a professor of marketing at New York University, Scott Galloway.
Mr Icahn on Thursday issued a shareholder letter saying eBay’s board had suffered a "complete and utter breakdown in the system of checks and balances" with the Skype deal.
Earlier this week, eBay released a statement praising Mr Donahoe and filed a proxy rejecting Mr Icahn’s two board nominees. "The board, together with management and external advisers, has assessed a spin-off of PayPal several times and continues to believe that each of the company’s payments and commerce segments are stronger together," eBay’s filing said.
The duel has become the talk of Silicon Valley. LinkedIn’s Mr Hoffman, who worked at PayPal earlier in his career, last week penned a blog post arguing that the payments business was better off within eBay and that Mr Icahn was engaged in "classic market exploitation." A PayPal co-founder, Peter Thiel, has said he is "viscerally against" Mr Icahn’s approach.
Other technology executives including PayPal co-founder Elon Musk and payments entrepreneurs have said eBay has held back the business. "eBay forced PayPal to do what was best for eBay, allowing other emerging online-payments companies to come into existence and thrive," said payments start-up YapStone CEO Matt Golis.
The rhetoric contrasts with the initially polite tone between Mr Icahn and eBay. In January, before Mr Icahn’s stake in the company became public, Mr Donahoe received a letter from the investor and spoke to him by phone. The CEO, in an interview on January 22, said the conversation was "very pleasant."
They later spoke again, including by phone on February 22, according to a regulatory filing. Two days later, Mr Icahn attacked eBay’s corporate governance.