Ebay PayPal Spinoff is a 'No-Brainer'

By: Bloomberg

Carl Icahn spoke with Bloomberg Television's Trish Regan and Adam Johnson today about his proposed PayPal spinoff, saying that eBay "hasn't don't as well as it should have" and a separation of PayPal is a "no brainer."

On Apple, Icahn said, "There's nothing wrong with the management at Apple...I just think that the board is just plain wrong in not taking advantage of a very undervalued situation at Apple and not using that capital."

Icahn on his plan for eBay and what he'd like to see happen with the PayPal spin-off:

"Well, we think that it all fits in with the philosophy that we have that shareholders should have a lot more to say in big-picture items like companies. This whole business of the divorce between ownership and management I really think is hurting our economy greatly. And I think it's time that shareholders should have more to say in the big picture, not micro managing. And we've done a lot of work on eBay and we believe without question it's a no-brainer that PayPal should be spun off."

On what PayPal is such an attractive opportunity:

"I'm not going to venture a guess on that now because I think when you say goes for, you spin it off and the shareholders would own PayPal and they would own eBay. And there's no reason they should be together at this point in our opinion. In fact, I think it would be helped by a management team that is separate and can go their own way. And I think the multiple would go up dramatically, and also the health of the company would be better. And if there was an acquisition, so be it, which is not bad either if it's the right type of an acquisition."

On whether it's because the businesses are so different:

"Well they're different now, and I really don't think - I think eBay, its own management, I think have a lot to do with themselves at this point. Even though earnings have gone up, it's certainly lagging behind their -their peers. So I think there too there could be certain things done. Being that said, we are putting up at this moment - we're going to put a slate of two up."

On whether eBay is opposed because PayPal is the crown jewel of the company right now:

"Yeah, but that's not the issue for the owner. That's an - that's an issue - we - we like to say they're not bad people, but who wants (inaudible) on the side of the owners in many instances. Their agendas are somewhat different. A board likes to have a bigger company sometimes.

I have that with my own boards where I control them, that you have this difference of opinion. I don't think in this case that they should be together. But obviously the board and management - you're saying that they said it. I know they've alluded to that. And there's going to be an argument."

"We're going to have a precatory, but I think today I - I think we are seeing sort of a secular change where precatories are more important and I think the boards are listening more to what shareholders say. And we're going to see what the shareholders want here. If they don't, so be it. Sometimes it takes me a few years to get anything done, three or four years. Look at Forest Labs. It took three or four years, but look what happened when it did happen. And look, I was - I remember Reynolds Tobacco. I fought for four years way back to get that done. And it went done, the shares went up fourfold spinning off the base, separating Nabisco from the tobacco company. And it took four years. So look at Time Warner. They finally did what we said after four or five years. It's getting less time though. I think now - I do believe that the large shareholders and institutions want to see results more and want to get more involved to some extent."

"You have a situation in this country where you have a lot of pension funds that are still under water. You're bailed out somewhat with this market, but I don't think this market is necessarily a proxy for what really is happening in the economy. And so therefore things -it's time that we just don't have an imperial board that just decides what is good for everybody."

On how he'll convince management that he's right and selling or spinning off PayPal will create value:

"Well, the way we look at it is we - I don't know that you could - will - I don't think - it'll be difficult to convince management, but I - I think that if you get a strong showing in a precatory I really do think that has a large effect on the board. And if the 51 percent of the shareholders that vote want to see it happen, then perhaps the board will take notice, and ISS will take notice of that. That I think is the way of it now, and I think that's going to happen more and more. And I'm hoping that it'll happen here."

"But again, we think eBay is sort of a no-brainer. The stock, it's in - it's in a growth area. I don't think it's done as well as it should have in its own area of eBay itself. But it's - it's obviously gone up, but look at the market it's in. It's in a very strong growth market. Look at Amazon compared to it. So again, you can say there's such a thing as the rising tide - the tide rising - rising tide raises all boats. But some boats more than others obviously."

On whether he's had any talks with Pierre Omidyar, the largest shareholder of eBay:

"No. I haven't had no - I've had no talks with him. I've noticed that he sold some stock recently, so he's an 8 percent holder. And I think I'm a little bit more than 0.8 today, but it doesn't necessarily - I don't think that is as important as the vote of the large shareholders. And you'll see what happens there. We'll see if we can convince them. And a vote that a precatory is difficult to get. There's no question about it. But we intend to do it..."

On whether he could get BlackRock on board:

"Yeah. You're really - sometimes Black Rock votes with us. Sometimes they don't. And when they vote with us - hey, look. In the - in all the - in all the proxy fights we've had in the last five, 10 years, even five years, look back. Look how well we've done with those. You - you - you go all the way from Motorola to Forest. Well look at Forest. It's up 50, 60 percent. You took a long time, but we finally got the - we got finally Brett Sanders on the board. Stock's up 50 percent. Look at Chesapeake."

"So I think what we say is this. That it isn't - the fact that a board's - a board shouldn't be - shouldn't be tampered with or influenced by management - excuse me. A board shouldn't be - shouldn't be bothered by owners, I think as the old song goes, it ain't necessarily so. And we proved it with our record. At the risk of being immodest, we said it many times, look, what - IEP is up, I don't know, 2,300 percent in the last 12, 13 years. In the last five years, we've averaged 38 percent return. And - and I think a lot of it's got to do with the fact that we're activists. I think activism will help this economy immensely, has helped it somewhat. And I think in this case this is a good example. Now it's a big company, so my share holdings, as you said before, I don't have that much influence. So we have to just go to the shareholders with it. Hopefully that's - they'll be speaking about it."

On upping his stake in Apple and why he's focusing on tech right now:

"Well, I think Apple is really a value situation, as is eBay frankly. They're going at relatively low multiples. And so it's not the normal tech company. And we - I just think that you have such a huge secular growth pattern in - in these companies. Apple is just growing - they really are in a great spot if you look at Apple because they really have a great ecosystem. And they're in a - they're in a business that is growing. The iPad and the iPhone, they're growing at a 15 percent volume a year and these guys have 22 percent of the smartphone business. And - and they've kept -Apple has kept its margins. In fact, might have increased it, and has built market share to boot."

"So Apple is - there's nothing wrong with the management of Apple. Let me get it straight. I can't necessarily say that about eBay, but I will say that about Apple. I just think that the board is just plain wrong in not taking advantage of a very under valued situation at Apple and not using that capital to actually help the smaller shareholder. In other words, I'm almost talking against myself there. It sounds a little funny and maybe some people scoff at it, but I'm almost talking against myself when I talk about Apple because it's almost ludicrous to me that they don't use a lot of their money to keep buying that stock. And they're letting guys like me buy it. Why don't they just buy it? Why don't they take advantage? That's what I'm saying about Apple."

On his concern about management at eBay versus Apple:

"I think Tim Cook is doing a great job there. I think at eBay we have to look at it harder. I'm not saying anything bad about them at this at eBay. I just would say that they certainly don't have the record of Amazon, for instance. And if you look at the last three years as the CEO has come there, the record - yeah, they're - certainly earnings are going up, but - but the fact is the last year they've been flat. They talked today about earnings. I think - I didn't really get to hear it because you were calling me, everybody else was - another situation. I don't think that their guidance is all that great."

bloomberg.com

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