Look out! Carl Icahn is on the rampage again, only this time it’s not just Apple (AAPL) that has his blood pumping. On Wednesday, the highly vocal activist investor recommended that eBay (EBAY) spin off its PayPal division as a way to unlock shareholder value and juice EBAY stock.
Is it a good idea? Sure, on paper — breaking a multi-faceted company down into its smaller, standalone parts makes it easier for investors to see exactly what they own.
But sometimes, a company is better off just dealing with keeping two distinct divisions operating under one roof.
Ebay is one of those companies.
What Icahn Wants
Just so there’s no confusion, it’s not as if Carl Icahn made a random observation as a disinterested, third-party observer — he now owns nearly 1% of all EBAY stock.
It wasn’t just an off-the-cuff hypothetical, either. Carl Icahn submitted a nonbinding proposal to spur the spinoff at the same time he nominated two of his own people to the board. There’s no guarantee those two individuals will be placed on the board — and even if they are, there’s no guarantee the board will agree to split eBay into two pieces. Still, in the name of “unlocking value,” Icahn has to at least give it a shot.
If the idea of splitting up eBay and PayPal rings a bell, there are a couple of possible reasons. One is the fact that eBay has considered doing so before. Several times, in fact. It came up in 2009 when both Skype and PayPal were on the chopping block, again in early 2012 when then-PayPal president Scott Thompson left his post for a position at the helm of Yahoo (YHOO), and it’s an idea that’s been floated to lesser degrees several times since eBay acquired PayPal back in 2002. Each time the issue has been pressed, eBay decided to hold into the payment-making division.
If the idea of Carl Icahn wanting to split a company up seems vaguely familiar, too … well, that’s hardly anything new, either. Icahn was the key driver behind Transocean (RIG) opting to divest some of its master limited partnership holdings, he desperately wanted OshKosh (OSK) to spin off JLG, and somehow Icahn got credit for sparking Motorola’s (MSI) spinoff of its mobile phone business.
The spinoff is just one of Icahn’s oft-used ideas in a relatively small bag of tricks. (The other mainstay is harassing a company into giving a great deal of its cash back to shareholders, but that’s another story.)
But the $64,000 question is, will a spinoff of PayPal truly be the best outcome for current EBAY stock owners? Or is Carl Icahn just looking to make a quick buck, then aiming to move on to the next target?
The Rest of the Icahn (and EBAY Stock) Stories
Just for the record, Icahn’s intuitions aren’t always right. He became a huge Blockbuster stakeholder in 2005, and his position began losing ground immediately. By 2010, Blockbuster filed for bankruptcy.