<

Must-know: Assessing Farallon Capital's 4Q13 positions

Part 2
Must-know: Assessing Farallon Capital's 4Q13 positions (Part 2 of 7)

Thomas Steyer’s Farallon Capital buys a new position in eBay

Farallon Capital Management and eBay

Farallon Capital initiated new positions in eBay Inc. (EBAY), Ross Stores Inc, (ROST), and Actavis Plc (ACT) and it sold its positions in Visa Inc. (V) and Equinix (EQIX). Farallon also increased its stake in Time Warner Cable (TWC).

Farallon’s most notable position initiated last quarter was eBay Inc. (EBAY). eBay accounts for 3.75% of Farallon’s portfolio, with 3,295,000 shares.

EBAYEnlarge Graph

eBay stock rose after billionaire activist investor Carl Icahn sent a letter to eBay shareholders. Icahn criticized the company’s board and management over alleged certain “conflicts of interest” and “multiple lapses in corporate governance.” He further reiterated his call to split PayPal from eBay. PayPal, which was acquired by eBay in 2002 for $1.5 billion, is the company’s fastest-growing business, with 5.2 million active registered accounts in 4Q 2013 and 143 million users at the end of 2013. PayPal saw revenue up 19% in 4Q 2013, outpacing 12% sales growth at eBay’s core marketplace unit. The stock is up 9% year-to-date but was up only 2% in 2013.

In January, Icahn built a stake of approximately 0.82% in eBay and proposed splitting PayPal into a separate company. Icahn also indicated that he had nominated two of his employees to eBay’s board of directors. eBay rejected Icahn’s spinoff proposal and said the board nominations will pass on to the board’s corporate governance and nominating committee, which will consider them in the ordinary course of business.

In his February 24 letter, Icahn claimed that eBay board member Marc Andreessen “has engaged in several transactions that lead us to question his loyalty to eBay.” Among other claims by Icahn, Andreessen is alleged to have invested in and actively advised no less than five direct competitors of eBay and, to some extent, PayPal, including Boku (a mobile payments platform), Coinbase (a Bitcoin wallet), Dwolla (a secure online money management platform), Jumio (an online and mobile credit card payment platform), and Fab (a design e-commerce business). Icahn added that another board member, Scott Cook, has retained almost $1 billion of stock in PayPal’s direct competitor, Intuit. Icahn further said these two board members “appear to have put their own financial gain in ongoing conflict with their fiduciary responsibilities to stockholders.” The activist investor also attacked eBay CEO John Donahoe, saying, “Donahoe appears to lack awareness about what is going on around him on his board and in the marketplace.”

In response, eBay said in a statement that instead of “more constructive and substantive discussions,” Icahn has resorted to “mudslinging against two impeccably qualified directors.”

In a February 27 letter, Icahn renewed his attacks on eBay and stressed the conflicts of interests of board members Marc Andreessen and Scott Cook. The investor claimed Andreessen “preempted” Skype’s IPO by purchasing 70% of Skype for less than what eBay paid for it. Andreessen’s group then profited by about $4 billion in only a year and a half by selling Skype to Microsoft (MSFT) for $8.5 billion—thrice the value they initially paid to eBay. Icahn said he will inspect “all books and records” associated with the Skype transaction.

eBay founder and chairman Pierre Omidyar said in a statement that he fully supports Andreessen and Cook and that “Carl Icahn is making unsubstantiated claims about our company and deliberately impugning the integrity of our directors.”

eBay recently rejected Icahn’s two nominees to its board on the grounds that both were unqualified and urged shareholders to vote against them at its next annual meeting.

To learn more about Icahn and eBay, please read Why Icahn’s proposed Paypal spinoff from eBay isn’t a good idea

Despite eBay strengthening its mobile platform with acquisitions, PayPal is facing intense competition in the space from startups such as Square, Dwolla, and Clover. Large companies have also developed similar services, such as MasterCard (MA) with its PayPass Wallet Services, Visa (V) with its V.me, Google Inc. (GOOG) with its Google Wallet, and, more recently, Apple (AAPL), which has shown interest in handling payments through mobile. eBay peer Amazon (AMZN) is also reported to be working on a new Kindle-based person-to-person (P2P) check out and payment system. Forrester Research forecasted last year that U.S. mobile payments will reach $90 billion in 2017, a 48% compound annual growth rate (or CAGR) from the $12.8 billion spent in 2012.

EBAY hedgeEnlarge Graph

For 1Q 2014, eBay said it expects net revenues to be between $4.1 billion and $4.2 billion, with EPS in the range of $0.51 to $0.53 and non-GAAP EPS in the range of $0.65 to $0.67. For the full year, eBay estimates that it will see $18 billion to $18.5 billion, with non-GAAP EPS in the range of $2.95 to $3.00.

The Realist Discussions