Carl Icahn Is at It Again, Attacking eBay

Updated from 9:03 a.m. to include Marc Andreessen's response on the second page.

NEW YORK (TheStreet) -- Carl Icahn is at it again, attacking eBay's (EBAY) board, most notably Marc Andreessen, as Icahn looks for eBay to spin off PayPal.

In a letter to shareholders, Icahn is asking for eBay to spin off its successful payments unit, PayPal, in an effort to boost eBay shares and reward shareholders, who have seen eBay's stock flounder over the past year. In the past 12 months, shares of eBay have gained 7.04%, compared to the 35.9% gain in the Nasdaq over the same time period.

EBAY 1 Year Total Returns ChartEBAY 1 Year Total Returns data by YCharts

As such, Icahn has asked eBay management to spin off the unit, but so far, eBay's management has refused. Icahn sent a letter to eBay's shareholders late last month, calling into question the aptitude of eBay's board of directors, most notably Andreessen, of well-regarded venture capital firm Andreessen & Horowitz, for being involved in transactions (including the eventual sale of Skype to Microsoft (MSFT)) which Mr. Icahn believes were not in the best interest of eBay shareholders.

Shares of eBay were lower in pre-market trading, losing 1.7% to trade at $57.78.

Icahn has been particularly active on Twitter regarding this debate, having sent the last tweet notifying followers of the letter using the hashtags #notworldclass #spinpaypalnow.

The following is the text of Icahn's latest letter, including the call for a debate on CNBC, of which so far, Andreessen and eBay have declined.

New York, New York, March 3, 2014 - Today Carl C. Icahn released the following open letter to stockholders of eBay Inc.

Despite having just days ago professed a desire for "honest, accurate debate" on the issues, eBay declined CNBC's offer to participate in a televised discussion with me. Then last Thursday eBay director Marc Andreessen attempted to defend his business practices to the Wall Street Journal but refused to directly address our assertions regarding his conflicts of interest. I think I am beginning to see a pattern here.

I have a message for eBay's board: You may be able to duck and weave when it comes to the media, but in a few short weeks you will have no choice but to face your stockholders at the annual meeting. We all deserve to know the truth about what really happened with Skype.


    eBay completed its acquisition of Skype in October 2005 for approximately $2.5 billion, plus potential performance-based consideration;[i]

    eBay announced in April 2009 that it was planning to separate Skype from the company, beginning with an IPO that was intended to be completed in the first half of 2010;[ii]

    That IPO never happened;[iii]

    eBay instead announced in September 2009 that it had agreed to sell a controlling interest in Skype for only $1.9 billion in cash and a $125 million note (less than eBay paid to acquire Skype) to an investor group that included eBay director Marc Andreessen's venture capital firm;[iv]

    Commenting at the time on this sale announcement, prominent technology writer Om Malik stated: "If you're an eBay shareholder, it's time for you to get mad about the sheer incompetency of the management. First they paid top dollar for Skype back in 2005, making billionaires out of Niklas Zennstrom and Janus Friis. And, now instead of waiting for an opportune time to go public, eBay management is selling low, at a time when the only buyers are bargain hunters."[v]

    Microsoft announced in May 2011 that it had reached an agreement with eBay director Marc Andreessen's investor group to acquire Skype for $8.5 billion in cash (a deal that would result in Mr. Andreessen's venture capital firm tripling its money after only 18 months);[vi]

    On the same day that the Microsoft deal was announced, eBay director Marc Andreessen boasted about this windfall (which we believe should have instead accrued to the benefit of eBay stockholders), stating: "This is one of the best-performing buyout deals of all time. To get this kind of return on a buyout deal in such short time is really rare." [vii]

    In the same interview, Mr. Andreessen made the following admission (which we believe strongly suggests that he knew at the time that his investor group bought a controlling interest in Skype from eBay, at what turned out to be a bargain price, that Microsoft was also interested in buying Skype): "One reason we were enthusiastic about buying Skype was that even though we thought it would be a tremendous standalone business, we also knew that for Microsoft and a number of other companies Skype would be an obvious thing to buy. We knew we'd always have the fall-back of selling to strategic buyers." [viii]

    eBay stated in February 2014, in response to our criticisms, that "the company explored all options for divesting Skype, including an IPO and sale to a strategic buyer" and that the sale of a controlling stake in Skype to director Marc Andreessen's investor group was "the option that offered the highest return at the time";[ix]

    eBay director Marc Andreessen conducted an interview with the Wall Street Journal in February 2014 in an attempt to defend his business practices. He refused to specifically address our assertion that, if he knew Microsoft was waiting in the wings to buy Skype (which we believe his boastful quote above strongly suggests), he had a duty under Delaware law to so inform eBay's board instead of usurping that corporate opportunity for his investor group: "Mr. Icahn also asserted that it was Mr. Andreessen's fiduciary duty to eBay CEO Donahoe to disclose the potential interest in a multibillion dollar Skype purchase by a strategic player. While Mr. Andreessen declined to respond to that accusation, he pointed out that investors who have a stake on two sides of a deal also have confidentiality agreements to two parties." [x]


    What did eBay's directors know about Microsoft's interest in Skype and when did they know it?

    Did eBay director Marc Andreessen know at the time that his investor group was purchasing a controlling interest in Skype from eBay that Microsoft was interested in buying Skype (as we believe is strongly suggested by his quote above)?

    If so, did he share that information with eBay's board of directors?

    In light of the massively higher price that Microsoft was willing to pay for Skype as compared to the price at which eBay sold a controlling interest to director Marc Andreessen's investor group, is it really possible that "all options" were sufficiently explored?

    Did eBay director Marc Andreessen enter into a confidentiality agreement that prevented him from sharing with eBay's board of directors information about Microsoft's interest in purchasing Skype (as we believe is strongly suggested by his above quote)?

    Is eBay director Marc Andreessen so clueless about corporate governance and the duties that directors owe to corporations under Delaware law that he truly believes that entering into a confidentiality agreement with a third party which apparently limited his ability to share vital information with eBay's board of directors is acceptable or an excuse for his actions?

    Does eBay director Marc Andreessen understand that if he entered into a confidentiality agreement with a third party that prevented him from fully discharging the duties he owed to eBay - that the mere act of entering into such an agreement may have been a breach of duty in and of itself (wholly apart from the usurpation of corporate opportunity that appears to have taken place here)?

    Who is to blame for this epic blunder?

    Is it possible to recover for eBay stockholders all or a portion of Skype's upside that was transferred to director Marc Andreessen's investor group at the expense of eBay stockholders?

We believe eBay and director Marc Andreessen have thus far refused to adequately clarify the public record. Therefore, we are in the process of demanding an inspection of eBay's relevant books and records pursuant to our right as stockholders under Delaware law. We will attempt through our examination of these books and records to answer the above questions for ALL stockholders of eBay.

In my opinion, Mr. Andreessen's conflicts are clear and insurmountable. However, Mr. Andreessen attempted to defend himself, telling the Wall Street Journal that "he recuses himself from boardroom discussions that could involve companies his firm is backing."[xi] Seriously? Mr. Andreessen expects eBay stockholders to be comforted by the fact that he self-polices himself? Excuse me if I do not find that nearly sufficient - especially in light of the Skype fiasco. As Jon Shazar at Dealbreaker eloquently noted when commenting on the Wall Street Journal interview:

Carl Icahn thinks that eBay should spin off PayPal, and to prove it, he said a couple of eBay's more prominent directors have more conflicts of interest than he has years. What he didn't know is that one of them, Netscape founder and Silicon Valley legend Marc Andreessen, has a fool-proof system for avoiding such delicate situations: Whenever one of the seven boards of directors on which he serves starts talking about an area in which he has an interest-presumably all of them-he just closes his eyes and puts his headphones on and, presto, no conflict of interest.[xii]

While that bit of hyperbole is no doubt funny, this is no laughing matter - especially when not only billions of dollars of stockholders' money, but also the future long-term path of our company, hang in the balance.

In closing, I will leave you with another quote from the Wall Street Journal interview:

Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, said a director withdrawing from conversations may not be adequate to eliminate conflicts in some instances. "Recusal sounds great legally," Mr. Elson said. "It's pretty tough practically." [xiii]

We strongly believe that eBay management and the board should know better than to allow this to continue for one moment longer. Stockholders, please stay tuned. We are looking forward to sharing with you our business rationale for separating PayPal from eBay. Thank you for your continued support.


Carl C. Icahn

Following the letter from Icahn, Andreessen has issued a rebuttal, calling Icahn's statements "[f]alse and misleading accusations."

Here is his rebuttal in its entirety:

My Statement on eBay Director Role and Governance

False and misleading accusations have been made against eBay and against me in my role as an eBay director. This post provides my perspective on those accusations and their surrounding context.

On the accusations:

I dispute all accusations that I have violated any of my duties to eBay shareholders.


* Throughout the eBay board's process of divesting Skype, I fully disclosed my potential interest and recused myself from all deliberations on the transaction, including all discussions, negotiations, and decisions. I was uninvolved in eBay's decision to spin off Skype and in eBay's decision to choose to partner with the Silver Lake syndicate.

* eBay's retained ownership in the Skype spinoff was 30% vs. Andreessen Horowitz's approximately 3%. That much larger ownership gave eBay a far bigger role in decision making on Skype after the spinoff than Andreessen Horowitz, as well as a far bigger economic payoff on the sale to Microsoft.

* Subsequent to the Skype transaction, I was re-elected to the eBay board in 2012 with virtually unanimous support - 99.7% of votes - of eBay shareholders. The Skype transaction received a high degree of public scrutiny when it happened; all of the facts around my role in the Skype transaction were fully public at that time; eBay has a very sophisticated body of shareholders; and if any of them saw any problem with my conduct around the Skype transaction, I am confident that they would have brought it up by 2012.

* Andreessen Horowitz's minority investment in Fanatics was made over a year after eBay divested that business as a part of eBay's acquisition of GSI Commerce; there was no possible conflict at that point. Further, there was no contemplation of Andreessen Horowitz investing in Fanatics at any time during eBay's negotiation and purchase of GSI Commerce or eBay's divestiture of Fanatics.

* I do not serve on the board of any company with any significant competitive overlap with eBay.

* I disclose any situation where I believe I may have a potential conflict and recuse myself from any eBay board deliberation when I believe I may have a potential conflict due to an investment in another company.

On the context:

Directors of all companies owe shareholders several duties, including the duty of loyalty. This duty focuses on avoidance or appropriate handling of conflicts of interest, and requires fair dealing by directors involved in transactions that could result in personal gain or financial conflicts with the company. To strengthen this duty and to further protect public company shareholders from potential conflicts of interest, directors are restricted in several different ways. These restrictions include:

(1) Prohibitions on one director serving on multiple company boards when those companies have any significant competitive overlap.

(2) Requirements that a director of a company disclose potential conflicts and recuse him/herself from board discussions and decisions when that director has potential conflicts, such as but not limited to an investment stake in another company.

(3) Restrictions on use of company confidential information by any director for any purpose other than that company's benefit.

These protections are enforced by several layers of oversight and accountability, including:

(a) Each company's legal counsel and broader board of directors.

(b) Regulatory agencies such as the SEC, as well as stock exchange rules.

(c) Shareholder votes, in which shareholders can vote directors in whom they lose confidence off the board.

(d) Shareholder litigation, which is very common and which is omnipresent on directors' minds during board meetings.

All of these protections apply to directors of public companies in every industry and every field, including directors who are venture capitalists, hedge fund activists, private equity investors, operating executives, and independent board members.

Some people have floated a theory that today's technology industry is more prone to potential conflicts because of the rapidly shifting nature of software. I don't think that's true. For example, in prior decades the conglomerate business model, in which companies would choose to acquire and operate in many unrelated industries, was more common - a dynamic that would easily lead to unpredictable potential conflicts among boards and directors.

Some people have also floated a theory that venture capitalists are more prone to potential conflicts than other kinds of directors due to their investments in multiple companies at once. I also don't think that's true. For example, activist hedge fund managers also tend to hold equity stakes in many companies at the same time, creating the exact same kind of potential conflict.

Important Additional Information

eBay Inc., its directors and certain of its executive officers are participants in the solicitation of proxies from stockholders in connection with eBay's 2014 Annual Meeting of Stockholders. eBay intends to file a proxy statement and WHITE proxy card with the U.S. Securities and Exchange Commission (the "SEC") in connection with such solicitation. EBAY STOCKHOLDERS ARE STRONGLY ENCOURAGED TO READ ANY SUCH PROXY STATEMENT (INCLUDING ANY AMENDMENTS AND SUPPLEMENTS) AND ACCOMPANYING WHITE PROXY CARD WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION.

Information regarding the names of eBay's directors and executive officers and their respective interests in eBay by security holdings or otherwise is set forth in eBay's proxy statement for the 2013 Annual Meeting of Stockholders, filed with the SEC on March 18, 2013. To the extent holdings of such participants in eBay's securities have changed since the amounts described in the 2013 proxy statement, such changes have been reflected on Initial Statements of Beneficial Ownership on Form 3 or Statements of Change in Ownership on Form 4 filed with the SEC. Additional information can also be found in eBay's Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on January 31, 2014.

These documents, including any proxy statement (and amendments or supplements thereto) and other documents filed by eBay with the SEC, are available for no charge at the SEC's website at and at eBay's investor relations website at Copies may also be obtained by contacting eBay Investor Relations by mail at 2065 Hamilton Avenue, San Jose, California 95125 or by telephone at 866-696-3229.

--Written by Chris Ciaccia in New York

>Contact by Email.

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