eBay issued a press release on Wednesday titled, “Stick to the Facts, Carl” in response to Carl Icahn’s most recent letter to eBay shareholders, but it might as well have read, “Stick It, Carl.” In its response to Icahn’s first letter, eBay had accused him of mudslinging, and now it’s progressed to calling him a liar, starting off its missive with, “Carl Icahn doesn’t let the truth get in the way of a good story,” characterizing his letters and media interviews as “not factually accurate” and accusing him of “disseminating claims that are dead wrong.”
“Activist shareholder” Carl Icahn is seeking two seats on eBay’s board and wants eBay to spin off PayPal into a separate company. He accused two current board members of having conflicts of interest and suggested they resign immediately.
In his open letter to stockholders on Wednesday, Icahn wrote, “There is no question that (eBay Board Directors Marc Andreessen and Scott Cook) are accomplished and value-driven, but we believe the primary problem, among other things, is that they appear to be value-driven for themselves, personally profiting while costing eBay stockholders at least $4 billion.”
Icahn reiterated his belief that it was wrong for Cook to serve on eBay’s board because he owns nearly $1 billion in stock in Intuit, a “fierce competitor” of PayPal. Icahn wrote:
“Is it good for PayPal to have a competitor in the board room gaining insights into its operations, product pipeline and proprietary technologies? We believe that Mr. Cook’s participation in strategic discussions on both sides of the table will continue to present challenges for eBay and will eventually, if it has not happened already, become a major strategic disadvantage for eBay.”
As for his message to the eBay Board regarding Andreessen, Icahn wrote:
“Corporate Governance Failures Do Not Have A Shelf-Life. The simple and, to us, disturbing fact is that eBay sold a controlling stake in Skype to a sitting board member (Mr. Andreessen) and Silver Lake, for about $1.9 billion. A mere 18 months later, that board member sold Skype to Microsoft for $8.5 billion, thereby netting a $4 billion gain for himself and Silver Lake that should have accrued to eBay stockholders.”
Skype has been a disaster for eBay from the get go. Meg Whitman overpaid for the company, and none of the eBay executives she appointed to head Skype could stick it out (the revolving door of Presidents included eBay CFO Rajiv Dutta, Alex Kazim and Henry Gomez). Just as she had when eBay acquired PayPal, she put her own minions in charge of Skype, leading to tensions in both cases.
Donahoe had plenty of reasons for trying to unload Skype when he took over from Whitman. Joltid Ltd, owned by the two Skype co-founders who had left the company in 2007, began claiming in March 2009 that eBay was violating its intellectual property rights. Meanwhile, analysts had been badgering Donahoe about getting rid of Skype, which they apparently saw as a distraction. It looked like Donahoe couldn’t wait to unload the albatross that was Skype, and he announced in April 2009 that eBay would spinoff the company in an IPO.
There were rumors that Skype cofounders wanted to buy back the company but were rebuffed. Upon hearing of the eBay’s deal to sell its majority stake in Skype later that year, their company Joltid sued eBay. And here’s where it gets interesting.
According to the Wall Street Journal, Joltid, which also owned a company called Joost, claimed former Joost CEO Mike Volpi breached his fiduciary duty by using confidential information to broker the deal to sell Skype to private investors – which included Index Ventures, for whom Mike Volpi worked.
But eBay sold a majority stake to the investors, including Andreessen and Index Ventures; it worked out a deal with Joltid; and the suit against Volpi was dropped.
Skype Timeline
2005: eBay acquires Skype for $2.6 billion in up-front cash and eBay stock, plus potential performance-based consideration that gives the deal a total value of up to $4.1 billion.
2008: Marc Andreessen joins eBay’s board.
April 2009: Donahoe calls Skype great stand-alone business with strong fundamentals and accelerating momentum in announcing a Skype IPO.
June 2009: Andreessen co-founds venture capital firm Andreessen Horowitz.
September 2009: Donahoe scraps IPO plans with no explanation, and Andreessen-led investors buy 65% of Skype for $1.9 billion in cash.
2011: Skype sold for $8.5 billion to Microsoft.
Wall Street seemed agreeable to eBay’s sale of a majority stake in Skype to an investor group that included Silver Lake, Index Ventures, Andreesen Horowitz and the Canada Pension Plan. For example, Colin Sebastian, then with Lazard, wrote:
“Deal appears to be a win-win for eBay. Overall, we view the transaction as positive for eBay for the following reasons: 1) the transaction monetizes the Skype asset at an attractive valuation; 2) the transaction will allow management to focus on eBay’s two core businesses – the Marketplace and PayPal; 3) cash from the transaction could potentially be used for buybacks; 4) the transaction will improve the overall segment margin profile of eBay by roughly 100 bps, according to our estimate; and 5) eBay will maintain a 35% stake in Skype, so it can participate in Skype’s future growth and a potential future liquidity event.”
Silicon Valley reporters didn’t raise any eyebrows at the time either, nor did anyone take a second look when that sale turned into a windfall for the investors, even though reports like this were being written:
“There are a lot of winners in today’s sale of Skype to Microsoft, but the biggest one has to be Marc Andreessen, the entrepreneur-turned-venture-capitalist whose firm, Andreessen-Horowitz, invested in Skype in 2009 and is now tripling its money after only 18 months. “This is one of the best-performing buyout deals of all time,” Andreessen says. “To get this kind of return on a buyout deal in such short time is really rare.”
As EcommerceBytes pointed out, the eBay sale valued Skype at $2.75 billion and the Microsoft purchase valued Skype at $8.5 billion, “a difference in valuation of $5.75 in less than 2 years.”
The issue raises questions about what reporters will scrutinize and what they’ll let take a pass. Bay Area reporters/bloggers are not in a position to pick fights with powerhouses like Andreessen or other venture capitalists who control access to money and access to startups and executives for interviews and conference keynotes.
It takes a powerful outsider to shine a spotlight on deals that may otherwise go unquestioned, even if that outsider has his own agenda. Former PayPal president Scott Thompson learned that when a hedge fund that sought seats on Yahoo’s board instigated an investigation into Thompson resume. In that case, the media had a feeding frenzy over an inaccuracy in his c.v.
Similarly, the Skype deal is only now being scrutinized because of a Wall Street player’s ability to shine a public spotlight on the deal, even though it suits his own agenda.
Why isn’t more scrutiny paid to high tech companies by the media? Did John Donahoe do eBay a disservice over the Skype deal, or was it a smart move at the time?
Comment on Monday’s EcommerceBytes Blog.
