For the first time in more than a month, Carl Icahn has written about something other than eBay. Kind of*. “A Watershed Moment for Stockholder Participation” celebrates the fact that institutional investors have begun to stand up for themselves, and in Icahn’s lifetime, to boot, at least in between digs at and rehashings of his case against, you guessed it, eBay.
I believe mutual funds and other big money managers owe it to their shareholders and clients to do much more than merely work “behind the scenes” at underperforming companies. Nevertheless, I am heartened by the awakening of institutional stockholders….
My fellow investors, there are moments in history when otherwise small, discrete acts greatly influence the larger destiny of secular changes, and I believe we are at one of those moments now.
And what would be the perfect way to ring in this new epoch? Why, how else but to install Icahn’s three nominees on eBay’s board and to force it to spin off PayPal?
The eBay annual meeting is a tremendous and completely appropriate opportunity to turn the tide – for stockholders to show the management of a large, underperforming technology company with what I believe are obviously self-interested board members, that we are paying attention and will demand accountability. The eBay board and management believe that because they operate in Silicon Valley – where “every prominent player is just an adviser, an investor, a co-founder, an acquirer, or a director away from another” – that blatant conflicts of interest and self-dealing will be tolerated.…
The need for a stockholder representation at eBay is especially crucial as eBay wrestles with the optimal way to take full advantage of its crown jewel – PayPal. This potential financial juggernaut lies buried inside eBay. Some may say it must be spun off now to achieve its maximum value, which could come in the form of an acquisition by another tech behemoth. Others may agree that an IPO to create a stand-alone company with substantial contractual ties to eBay will produce the best result for stockholders and allow PayPal to attract the vital new talent necessary to achieve its maximum potential. Regardless of the manner of separation, eBay stockholders should rightfully be concerned, based on the advice of some of the best minds in Silicon Valley, that there is a serious risk that PayPal will simply wither if it is not separated from eBay now.
The world’s biggest institutional investor agrees—with the first bit, about institutional investors making themselves heard. Unfortunately for Icahn, Larry Fink is less sure about turning all decision-making over to the likes of Carl Icahn.
To meet our clients’ needs, we believe the companies we invest in should similarly be focused on achieving sustainable returns over the longer term. Good corporate governance is critical to that goal. That is why, two years ago, I wrote to the CEOs of the companies in which BlackRock held significant investments on behalf of our clients urging them to engage with us on issues of corporate governance….
Many commentators lament the short-term demands of the capital markets. We share those concerns, and believe it is part of our collective role as actors in the global capital markets to challenge that trend….
Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks. We certainly believe that returning cash to shareholders should be part of a balanced capital strategy; however, when done for the wrong reasons and at the expense of capital investment, it can jeopardize a company’s ability to generate sustainable long-term returns.
* to be sure, 36 of the 3,012 words contained in this missive are “eBay,” and it concludes with the hashtag “#spinpaypalnow.” Plus, after 147 years of successful activism, Uncle Carl can’t but mention himself and his achievements every now again. To wit: “At the risk of being immodest, I believe my record proves…” and “I have made a great deal of money by understanding some simple facts.” And, of course, a mellifluous turn of phrase about a former nemesis: “Liar Gate.”