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ValueAct Acquired EBay Stake Before Icahn Prompted Exit

EBay's North Campus
EBay Inc. rose following the Jan. 22 disclosure of investor Carl Icahn’s stake, even as holiday sales missed analysts’ estimates, reaching a high of $59.70 on Feb. 28. Photographer: David Paul Morris/Bloomberg

Activist investor Jeffrey Ubben, who runs ValueAct Capital Management LLC, said his firm bought a stake in EBay Inc. and then quickly exited when the disclosure of Carl Icahn’s investment inflated the stock price.

ValueAct bought EBay at about $50 a share and exited at about $56, Ubben said today at the Active-Passive Investor Summit in New York. EBay rose following the Jan. 22 disclosure of Icahn’s stake, even as holiday sales missed analysts’ estimates, reaching a high of $59.70 on Feb. 28. Ubben didn’t say when his firm acquired or sold the stake.

The share increase “was all on air,” Ubben said. “You have the company disconnecting from fundamentals. The end game here was excess coverage with no real change.”

Ubben said heightened media interest in activist deals and surging stock prices have changed the investing landscape for firms like his, making it more difficult to find attractive opportunities. Investors are giving “too much credit” to activist managers and pouring money into the strategy at a time when returns are beginning to decline, he said.

“It’s getting a little hard to get in, both because of the rising stock price environment and a lot of media attention on what we do, the proverbial activist space,” Ubben said. “It’s almost scary that the money comes in as the return profile is coming down.”

Valeant, Microsoft

Activist investors tend to buy at least 5 percent of a company’s stock and flag their intention to actively engage corporate executives and directors by disclosing their holding in a 13D filing with the U.S. Securities and Exchange Commission.

EBay has declined 9.3 percent from its February intraday peak, to $55.44 at 1:46 p.m. in New York. The company and Icahn this month ended an acrimonious four-month disagreement over whether to split off the PayPal payments unit from the largest online marketplace. Icahn owns a 2.2 percent stake in the company, according to data compiled by Bloomberg.

San Francisco-based ValueAct, which manages about $14 billion, helped change the direction of companies from Valeant Pharmaceuticals International Inc. to Sara Lee Corp. Last year, the firm helped get industrial equipment maker Gardner Denver Inc. to sell itself to KKR & Co. In 2012, it attained board seats with Adobe Systems Inc. and Motorola Solutions Inc.

The effectiveness of activism in recent years has emboldened usually passive institutional shareholders to increasingly back corporate changes. At Microsoft Corp., ValueAct President Mason Morfit together with Ubben quietly garnered enough fund manager backing last year to gain a board seat and a say in the selection of a new CEO -- with a less than 1 percent stake. ValueAct favors quiet influencing over poison penmanship, using data to make tough points and a long-term commitment to coax changes behind the scenes.

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