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Icahn rips eBay board, cites 'multiple lapses of governance'

Monday, 24 Feb 2014 | 10:34 AM ET
Carl Icahn takes on eBay
Monday, 24 Feb 2014 | 9:08 AM ET
CNBC's David Faber reports activist investor Carl Icahn is fighting to change the board composition at eBay due to a disregard in accountability.

Billionaire investor Carl Icahn accused eBay CEO John Donahoe of failing to spot—or ignoring—conflicts of interest on the company's board and called again for the spinoff of its fast-growing PayPal division.

Icahn, who also disclosed a 2.15 percent stake in the e-commerce giant, said in a letter to eBay shareholders on Monday that he had found "multiple lapses in corporate governance" that "could put the future of the company in peril."

Marc Andreessen and Scott Cook, both long-term eBay board members, bore the brunt of Icahn's conflict allegations.

Carl Icahn eyes Ebay Inc.
Getty Images
Carl Icahn eyes Ebay Inc.

"How is it possible to engage in meaningful discussions about long-term stockholder value while ... the CEO seems to be completely asleep or, even worse, either naive or willfully blind to these grave lapses of accountability and stockholder value destruction?" Icahn said in a letter to shareholders.

In a statement, eBay dismissed Icahn's letter as "cherry-picked old news clips," adding that both Andreessen and Cook "bring extraordinary insight, expertise and leadership" to the board.

"As we are sure our other shareholders would agree, we prefer to engage in more constructive and substantive discussions of why, in our view, PayPal and eBay are better together," eBay said. "Instead, Mr. Icahn unfortunately has resorted to mudslinging attacks against two impeccably qualified directors."

Andreessen is one of Silicon Valley's most prominent venture capitalists, while Scott is founder, former CEO and current board member of Intuit, the maker of TurboTax and other business and personal financial software.

"During Mr. Andreessen's time on the eBay board he has purchased large stakes in two former eBay subsidiaries, reaping significant personal riches," Icahn said in the open letter.

Icahn said Andreessen, who also sits on the board of Facebook, had invested in and actively advised five direct competitors of eBay - Boku, Coinbase, Dwolla, Jumio and Fab. Four of these, he said, were direct competitors to PayPal.

Icahn, citing a New York Times report, also said that in September 2009, an investor group that included Andreessen had preempted a planned IPO of Skype and bought 70 percent of the internet voice and video service for less than eBay had paid.

The group sold Skype to Microsoft for $8.5 billion about 18 months later, netting about $4 billion, Icahn said in his questioning of Andreessen's loyalty to eBay.

Others have also been critical of the deal, Icahn said, "but, until now, none have taken on the task of standing up to Mr Donahoe and this board."

Donahoe has been CEO of eBay since April 2012. EBay's shares, which closed at $54.59 on the Nasdaq on Friday, have risen about 45 percent over the period, outperforming the 35 percent rise in the Nasdaq composite index.

Icahn also took issue with Andreessen's investment in online shopping platform Kynetic, which eBay had sold back to its founders at a "low sale price" in 2011. Andreessen later invested $150 million in the company, for a paper gain of more than 100 percent a year later, Icahn said.

Icahn also raised concerns about having input from Cook when Intuit's Go-Payment service and PayPal were "direct competitors" in online payments processing.

"How can the board have a conversation about the strategy or performance of PayPal when a representative of a direct competitor who has so much at stake is in the room?"

EBay bought PayPal for $1.5 billion in 2002 and has considered hiving off the multibillion-dollar division.

But the company said last month that it had determined that PayPal would lose synergies with eBay's overall e-commerce business if it was independent.

"Let me remind you that we have an exceptionally strong board, with a diverse group of highly qualified directors. In fact we have a world class board," Donahoe said on a call with investors last month, explaining why eBay had rejected Icahn's proposal for a split.

"Resign Immediately"

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The eBay board also includes Ford Motor Executive Chairman William Ford Jr and eBay founder Pierre Omidyar.

Soon after it was revealed last month that Icahn had taken a stake in eBay, Andreessen and Omidyar tweeted that they fully supported keeping the company intact.

Icahn's latest attack on eBay follows a major payday from his investment in Forest Laboratories Inc, where he was also pressing for a change in strategy and leadership.

Forest, in which Icahn was the second largest shareholder, said last week it would be bought by Generic drugmaker Actavis for about $25 billion.

Icahn said the takeover was "yet another validation of the activist investment philosophy in general."

The 78-year old investor dropped his campaign to force Apple to boost its buyback program earlier this month when the iPhone maker said it had bought $14 billion of shares over a two-week period.

Icahn noted that according to a Department of Justice complaint, eBay has agreed not to hire Intuit employees to placate Cook who had complained about eBay's hiring practices.

"Is Mr Cook wary of how a standalone PayPal could impact the company he founded? Is he worried that it would diminish the value of his $1 billion in Intuit stock?" Icahn asked.

Icahn said he should not even have to run a proxy fight to shake up eBay's board.

"Rather, 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," he said.

Andreessen has been on eBay's board since 2008, while Cook has been a director since 1998.

--By Reuters

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