WSJ: Icahn Tries Unique Path to Split eBay: A Shareholder Vote
The Wall Street Journal
Jan 23, 2014
In attempting to split eBay Inc.EBAY -0.90% and PayPal, Carl Icahn is employing a little-used tactic in activism, but one that recently scored a victory.
Mr. Icahn has submitted to eBay a shareholder proposal that would seek a non-binding vote on whether the company should spin off PayPal, its electronic-payments business, eBay said Thursday.
Demanding a company split up is nothing new. Activists, including Mr. Icahn, regularly call for breakups. But seeking a non-binding vote on such a big corporate decision is rare.
There have only been 12 such proposals since 2005, according to FactSet SharkWatch.
Of those only six made it to a vote, FactSet said. Companies can seek SEC approval to keep shareholder proposals off a ballot, most of the time by arguing the topic is within the board’s prerogative, not up for shareholder democracy.
Mr. Icahn can take heart in the most recent example.
Last year Timken Co.’s shareholders approved a proposal from Relational Investors LLC and California State Teachers Retirement System, or Calstrs, seeking to split the company’s bearings and steel-making businesses. It marked the only instance FactSet has of a shareholder base actually supporting such a proposal
TimkenTKR -3.73% urged shareholders to reject the measure, saying the businesses were better together. The steel-making side supplied the bearing-making side and the combination provided a competitive advantage, Timken said. The activists, who together held 7.3% of Timken, argued it was a no-risk vote for shareholders.
The non-binding proposal won support from 53% of shares voted in May and a few weeks later the company formed a committee to explore the option. Timken announced it would indeed split in September.
“We believe a similar fate will likely fall on EBAY if it doesn’t turn this attack back at the shoreline because once Icahn secures a beachhead, the battle may be lost,” said Don Bilson of Gordon Haskett Research Advisors, an event-driven research company.
Examples of the vote failing included a 2009 shareholder proposal at General ElectricCo.GE -3.18% that got just 5.4% of votes cast in favor and a 2007 proposal at ViacomInc.VIAB -2.18% that got just 0.34% of shares voted. Closest to success was a 2007 campaign that got 36% of shares voted in favor to split Meadow Valley Corp., a construction conglomerate.
The management of eBay started its campaign Wednesday for why eBay and PayPal belong together.
“We believe that our collection of assets drive more growth and more success together, than apart,” Chief Executive John Donahoe said in an interview with WSJ Wednesday. “The eBay marketplace accelerates PayPal’s success; the eBay marketplace provides data that makes PayPal smarter.”
On a conference call with analysts, Mr. Donahoe said the idea of a split was “not a new idea” and said the board reviews any paths to unlock value, touting its decision to separate Skype in 2009.
While shares rallied in after-hours trading, the stock has come back Thursday, up 1.1% to $55.03 in recent trading. Several analysts downplayed the prospect of a split.
“With EBAY management resistant to activist ideas, and the likelihood of a Paypal spin low without management support, we believe that weaker fundamentals will return to focus soon enough,” Stifel said in downgrading eBay to a hold rating.