When it comes to activist investors, Starboard Value LP is one of the better-known names. And when it comes to former great online growth stocks, eBay Inc. (NASDAQ: EBAY) fits in that “used-to-be” and “has-been” club quite nicely. On top of activist investor news, now eBay finds itself in the rumor mill as well.
Starboard Value is shown to hold more than a 1% stake in the outstanding shares of eBay and the activist investor group is now going back after eBay to make more change. Starboard sent a letter to eBay acknowledging that eBay did cooperate with both Starboard and Elliott Management but they also want more action.
According to the investment group, eBay’s strategic review is nearly 12 months since the commitments and not enough progress has been made. Specifically, Starboard cited that “no clarity has been provided on a separation of Classifieds” and that the operating review targets “anticipate only limited margin expansion while revenue growth has continued to decelerate. The group also noted that eBay has not added a new director and has not announced the departure of an incumbent independent director.
According to Starboard’s value proposal, and despite the $4.05 billion sale of StubHub, the letter said:
We continue to believe that eBay is deeply undervalued and that significant opportunities exist to create value for the benefit of all shareholders based on actions that are within the control of management and the Board… We believe eBay has an opportunity to create significant shareholder value through the separation of eBay Classifieds Group (“Classifieds”), and that at peer trading levels, the implied valuation of the core Marketplace business (“Marketplace”) is extremely attractive, with opportunities to improve revenue trends, execution, and profitability in the core business.
Where the reports stands out on the Classified unit is that other classified operations have a media value of 22-times expected EBIDTA, but eBay is valued at only 8-times forward EBITDA. Starboard’s letter said:
In our view, eBay’s Classifieds business is similarly attractive to many of these companies and would trade at a similar valuation if it were a standalone public company. The Company has guided to high-single digit growth, and with the recent added disclosure of segment margins, we estimate that Classifieds Adj. EBITDA margins are in the low-mid-40% range. Based on this financial profile and peer trading levels, we believe that a separation of Classifieds would unlock a tremendous amount of value for eBay’s shareholders and create significant upside in the stock.
As for the unlocking, a potential sale is one issue but so is the tax-free spin-off proposal.
eBay issued a response and showed multiple instances where the company has made efforts to make changes from delivering on financial commitments, scaling growth initiatives, increasing margins, returning capital to shareholders, transforming its portfolio of operations and “refreshing” its board of directors. The statement said:
The eBay Board of Directors includes a director jointly nominated and agreed upon with Starboard, a representative of one of our largest shareholders, Elliott Management, and other strong, experienced and independent directors. The Board and eBay’s management team are aligned in their commitment to taking all appropriate steps to drive the value of the Company. Our Board and management team have implemented changes based on investor input and have taken significant actions to deliver long-term shareholder value and strengthen the business. Through that lens, we will review Starboard’s letter and perspectives as we continue to rigorously review our business and opportunities for growth and value creation.
eBay shares had been down under $35 earlier on Tuesday, but the stock popped up over 8% to $37.40 on word that IntercontentalExchange, Inc. (NYSE: ICE) has approached eBay multiple times about a potential takeover. ICE’s market cap is $54 billion, most investors think of it as one of the few global leaders in stocks, futures and other securities trading.
Suddenly the trading volume was double the normal daily volume. With a 52-week range of $33.53 to $42.00, eBay has a market cap of $30 billion and the Refinitiv consensus analyst target has now dropped down to $38.73.