EBay Settles Icahn Proxy Fight, Adds Independent Director

EBay Inc. and activist investor Carl Icahn are burying the hatchet.

Ending an acrimonious four-month disagreement over whether to split off the PayPal payments unit from the largest online marketplace, EBay said it would bring on an independent director to its board. In return, Icahn said he would drop his campaign to add two board members and force a PayPal spinoff, according to a statement today. EBay will appoint CVS Caremark Corp. Chairman David Dorman as an independent director, bringing the number of independent members to 10 on the 12-person board.

The deal caps weeks of verbal sparring between Icahn and the San Jose, California-based company. Icahn had called a spinoff of PayPal a “no brainer” and also criticized EBay board members for conflicts of interest before proposing an initial public offering for 20 percent of the payments business. EBay Chief Executive Officer John Donahoe repeatedly said PayPal belongs with the company’s e-commerce business.

Icahn said today in the statement that he continues to believe in the benefit of a separation of PayPal “at some point in the near future” and will make his case through private discussions with the company. Icahn said that while Donahoe has made no commitments regarding a separation, the two have agreed to meet regularly to discuss strategic alternatives.

On Twitter, Icahn, who also signed a confidentiality agreement with EBay, said he was “extremely pleased” about the deal and that it was a “win-win” for shareholders.

Long Term

In an interview on Bloomberg Television, Donahoe said Icahn has “seen the potential and opportunity in our company” and “I think he’s really becoming a long-term shareholder in our company.”

EBay fell 3.2 percent to $54.08 at the close in New York. The shares are little changed since Icahn took a stake in the company in January.

EBay is just one of the technology companies that has faced activist pressure in recent years. Apple Inc., Microsoft Corp., Juniper Networks Inc., Yahoo! Inc. and others have also been targeted by investors including Icahn and ValueAct Holdings LP. Some of the companies have responded with bigger dividends, a board seat or restructurings.

Few of those activist-company interactions have been as publicly contentious as the one between EBay and Icahn. Over the course of the clash, Icahn attacked EBay’s corporate governance by broadening his criticism of EBay to Donahoe and the board. In particular, Icahn said EBay directors Marc Andreessen and Intuit Inc. co-founder Scott Cook were unfit to be board members due to conflicts of interest.

Playing Defense

EBay defended itself by issuing press releases almost everyday, with former PayPal executive and LinkedIn Corp. founder Reid Hoffman and EBay Chairman Pierre Omidyar jumping into the fray. Andreessen also took to Twitter to argue that the allegations of conflicts of interest were untrue.

At the heart of the back-and-forth were arguments about whether PayPal would grow faster as a standalone company rather than as a unit of EBay. Donahoe said a unified entity helps fund PayPal’s expansion.

Lee Intercedes

The dispute began simmering down with help from Jimmy Lee, JPMorgan Chase & Co.’s vice chairman, Donahoe said in the Bloomberg Television interview. Lee encouraged Icahn and Donahoe to settle, the CEO said.

Over the last week, Icahn and Donahoe had a number of conversations, Icahn said in the statement.

Icahn ultimately wasn’t able to make a strong enough case to split PayPal, said Robert Peck, an analyst at SunTrust in New York, who rates EBay stock a buy.

“It was a challenge,” said Peck. “I think they realized it was going to be a tough battle to at least prove their case why investors needed to go with him over the company.”

In the interview on Bloomberg Television today, Donahoe said Dorman is a “highly respected” addition to the board. The 60-year-old Dorman is a former CEO of AT&T Inc. He’s also on the boards of Yum! Brands Inc. and Motorola Solutions Inc.