EBay CEO Reiterates Company Stronger With PayPal

EBay CEO Reiterates Company Stronger With PayPal

John Donahoe, in Interview, Disputes Criticisms by Carl Icahn, Defends Director Andreessen


March 4, 2014 1:10 p.m. ET

EBay Inc. EBAY -0.34% Chief Executive John Donahoe has battled to revive the online marketplace to take on other giants like Amazon.com Inc. AMZN +2.33% Now, he’s facing a very different foe: activist investor Carl Icahn.

Mr. Icahn wants to break up eBay by separating PayPal, its payments business, from the namesake shopping website, and he’s nominated two business associates to the board of directors to help. More recently, he has called into question the integrity of two directors, suggesting they should resign over alleged conflicts of interest.

Mr. Donahoe—backed by his board—says a breakup is a bad idea and eBay benefits from retaining PayPal, which is on pace to overtake eBay.com in revenue within the next couple of years. Mr. Icahn says that is why PayPal could be sold at a high premium.

The looming proxy fight threatens to be a distraction as the 53-year-old experiments with ways to bring in more business for both eBay and PayPal, like same-day delivery and in-store checkout.

Mr. Donahoe, CEO since March 2008, talked recently with The Wall Street Journal about why eBay is better off with PayPal and how he stays focused on running the business. Edited excerpts:

WSJ: What is your opinion of Mr. Icahn’s proposal to carve off PayPal from eBay?

Mr. Donahoe: EBay and PayPal we believe are stronger together than they would be apart. EBay helps PayPal grow faster by creating a flywheel effect because PayPal is the primary and, in some cases, exclusive way to pay on eBay.

When we look out at the market opportunity, we look at the convergence of e-commerce and retail, online and offline. We see an enormous opportunity. Our focus at eBay is to enable commerce, connecting buyers and sellers all over the world. My primary focus these days is staying focused on our business and growing our business.

WSJ: What would happen to eBay and PayPal if they did split?

Mr. Donahoe: We look at both alternatives all the time. Obviously, they would continue to compete in their respective markets. They will grow sustainably better together than they would apart. PayPal is not being held back by being part of eBay, the same way that the eBay marketplace is not being held back by being part of PayPal.

Our challenge is to make payments so easy that other technology companies just use our capabilities, because in many cases other companies don’t really want to get into the guts of payments.

WSJ: Why bother listening to Mr. Icahn, who has just a 2% stake in eBay?

Mr. Donahoe: I always listen to shareholders. Our shareholders have reinforced their belief that our current direction, our current strategy is on track. Our goal is to drive value for those shareholders over time. That’s what our focus has been and that’s what it’ll continue to be.

We look at all of our strategic alternatives regularly. We did it five years ago and at that time we determined Skype didn’t have synergies with the rest of our portfolio, even though it was the highest-growth asset. So we divested it because we thought it was best to focus our resources on our core business.

At that time we determined eBay and PayPal were better together. If and when that changes, we’ll act rationally. Over the last 12 to 24 months, you see commerce companies trying to get into payments, you see payments companies trying to get into commerce. That’s a little bit of validation that to build a strong commerce company, we’re better off together.

WSJ: Mr. Icahn has said eBay board member and venture capitalist Marc Andreessen couldn’t be objective during the Skype sale, because his firm stood to benefit. How do you respond to that?

Mr. Donahoe: Simply false. We went through a clear process to sell Skype. A process that included reaching out to other investors, a process that resulted in a competitive bid for Skype, that resulted in selling 70% of Skype to the highest bidder. Marc recused himself from the beginning.

WSJ: How do you manage the potential for conflict among board members including investors with varied interests and assets?

Mr. Donahoe: When there is a potential for conflict, the right answer is to recuse. Where it’s in doubt, you recuse yourself. Conflicts are inevitable, it’s not just in tech.

The most important thing is to compose a board of people that have relevant experience, expertise, skill sets and a diversity of backgrounds, diversity of experience, and diversity of personality. That’s the best way for a board to help a company add shareholder value.

WSJ: How do you stay focused on the company’s operations during a time like this?

Mr. Donahoe: My main focus is not being distracted by this media sideshow. I’m focused on growing and driving our business. What will determine our success or failure is if we successfully execute in the market, if we successfully innovate in the market, if we grow. If we do those things, we’ll drive shareholder value and everyone will be happy.

WSJ: How do you think eBay came to Carl Icahn’s attention?

Mr. Donahoe: You’ll have to ask him. Our interests aren’t unaligned. Everybody wants to drive shareholder value; Carl wants to drive shareholder value. How we do it and the time horizon for how we do it may be different, but we ultimately want the same thing.

WSJ: You recently invested $134 million in Indian online marketplace Snapdeal. Do you want to buy them?

Mr. Donahoe: You never know. Our investment is just a signal that we think the market is a big and important market. As people are coming online in India, they are becoming commerce citizens. We thought Snapdeal offered a nice complimentary business—it is focused on slightly different segments and slightly different groups of inventory.

WSJ: What sort of things do you buy yourself on eBay?

Mr. Donahoe: I buy almost anything I can. I bought my collar stays on eBay, I bought my shoes on eBay, I buy my Nespresso on eBay.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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