Icahn, eBay settle proxy fight over PayPal separation

April 11, 2014

Practitioner Insights thumbnail 2(Editor’s Note: This post is an excerpt from an article appearing in Practitioner Insights on WestlawNext)

The battle to separate PayPal appears to be over, for now. EBay Inc. filed a proxy supplement on April 10 disclosing that the company has reached an agreement to settle its proxy fight with Carl Icahn. In addition to nominating two of his own nominees for election to eBay’s board of directors, the activist investor has pressured the company for months to separate its PayPal business segment into a standalone public company.

After initially pushing for a full spin-off of the PayPal business segment into a new public company in January, Icahn sent a letter to eBay’s board on March 19 calling for a partial IPO to sell a 20 percent interest in PayPal to public investors.

Among the reasons for suggesting the separation, Icahn noted that a partial separation of PayPal will unlock hidden value for existing shareholders by “creating two dedicated and highly-focused independent businesses.” Additionally, a separation would allow PayPal to expand its product offerings to include “check writing, direct deposits, interest on PayPal balances and other financial conveniences that consumers expect.”

In response to eBay’s argument that there are certain “synergies” that exist only by keeping the businesses together, Icahn suggested that these synergies will remain in place if the two companies enter into a long-term, commercially viable support agreement.

Terms of settlement

Despite Icahn’s belief that the separation will benefit eBay and PayPal, he is withdrawing his proposals to separate the businesses, as well as his two nominees to eBay’s board of directors. In return, eBay has agreed to appoint David Dorman to its board of directors, at the suggestion of Icahn.

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