Shares of eBay Inc (NASDAQ:EBAY) have been reacting positively to news that Carl Icahn had acquired a significant stake in the company. However, Bernstein analysts believe investors are reacting to the possibility of an increased share buyback and other steps rather than the fact of Icahn’s involvement. They consider what it will take for Icahn to just “go away” in their latest report.
Downside for eBay limited
Analysts Carlos Kirjner and Peter Paskhaver say eBay Inc (NASDAQ:EBAY) may begin increasing its share repurchases as a way to fight back against Icahn. Aside from all the noise the activist investor has made regarding the conflicts of interest he sees with the company’s board members, he has been pushing for a separation of PayPal and eBay MarketPlaces. Contrary to what others have suggested, the Bernstein team thinks investors may not agree with his view that a separation is best for the company.
They like the fundamentals of both businesses and think that concerns about competition for PayPal and the growth rate of MarketPlaces GMV are exaggerated. They think eBay Inc (NASDAQ:EBAY)’s announcement about an increase in its share repurchase limit, as well as the activist pressure from Icahn, will limit downside to investing in the company.
eBay on solid footing
The Bernstein team says they are still skeptical that there is any value to separating eBay Inc (NASDAQ:EBAY)’s two businesses. They think both of them are on solid footing and that the company’s shares are undervalued. They believe the auction site’s lackluster guidance may be more about conservative expectations from management rather than any rea danger.
They believe the competitive pressures some investors have been concerned about are nothing but a mix shift from an acceleration in Merchant Services TPV growth and do not think that this has had a visible impact on the payment services provider’s performance. They think eBay Inc (NASDAQ:EBAY)’s MarketPlaces remain competitive as well in the ecommerce sector and is at least maintaining its share of the market.
Carl Icahn may stick around for awhile
The analysts took a look back at Carl Icahn’s activist history and said that based on past campaigns, he probably won’t go away for several more quarters. In fact, they think he will stick around for at least six months and that eBay Inc (NASDAQ:EBAY) will probably make more concessions to the activist investor.
They note that he has been successful in about half of his campaigns about board representation but “significantly more successful” in terms of spinoff campaigns. About half of the campaigns in which he fought for board representation involved either a proxy battle or a threat of one. The analysts also found in their study that “a significantly larger proportion of partially won or failed campaigns” did involve proxy fights. This would suggest that most of his wins involved management whose thinking was more similar to Icahn’s thinking than eBay Inc (NASDAQ:EBAY)’s management is.
For example, Carl Icahn one five of the seven spinoff or asset sales campaigns in the cases they looked at. However, two of them involved a proxy fight, and in both of them, that fight was settled. Since eBay Inc (NASDAQ:EBAY) management is putting up such a resistance to a spinoff, they believe Icahn’s campaign will continue for some time. They also note that his proxy battle campaigns over the last ten years have averaged 11 months, with the median campaign lasting eight months.