EBay CEO says top shareholders agree PayPal should stay put

Phil Wahba and Nadia Damouni
eBay Inc President and CEO John Donahoe speaks during a news conference in Tokyo May 9, 2012. REUTERS/Yuriko Nakao

By Phil Wahba and Nadia Damouni

NEW YORK (Reuters) - EBay Inc CEO John Donahoe said on Wednesday that several of the online retailer's most active shareholders have assured him they support his efforts to resist demands by activist investor Carl Icahn for a spin-off of the PayPal unit.

Donahoe told Reuters on Wednesday he has spoken with as many as 16 of the 20 most-active shareholders in eBay, and most favored hanging on to the fast-growing PayPal payments unit. He did not say what percentage of the company's shares were held by the investors who agreed with his resistance to Icahn.

"I met with 15, 16 of our top 20 active investors, have engaged back and forth in dialogue with them," Donahoe told Reuters in an interview.

"The majority of them understand that they're stronger together," he said. PayPal had become the preferred online payment method of the online marketplace's customers when eBay acquired it for $1.5 billion in 2002.

The top 20 shareholders hold a combined 42 percent of eBay shares, according to Thomson Reuters. Its top shareholder, eBay founder Pierre Omidyar, holds 8.4 percent of the shares and has repeatedly expressed support for eBay's plan to stay intact.

Icahn owns just over 2 percent of the eBay. Management has sparred relentlessly with him since January, when the company announced that the pugnacious billionaire had made an unsolicited proposal that eBay hive off PayPal. Until now, neither side had addressed the question of how other investors viewed a prospective spinoff.

Icahn was not immediately available for comment. Earlier on Wednesday, he said corporate governance at eBay was the worst he had ever seen, the latest volley in a feud that has included several press releases by Icahn and television appearances.

Icahn has sent letters to shareholders accusing two eBay directors of conflicts of interest, and calling the board dysfunctional. He has proposed two new directors.

In the past, eBay has considered spinning off the multibillion-dollar payments service. But the company concluded that PayPal would lose synergies with the overall e-commerce business if it were an independent unit.

Donahoe suggested that activist shareholders can play a constructive role, under some circumstances.

"If you were to look at a spectrum of activists, you see a different playbook, you see different approaches," Donahoe said.

A case in point, Donahoe said, is Ralph Whitworth, co-founder of activist investment fund Relational Investors LLC, whom Donahoe praised for "not playing it out in the media" prior to winning a seat on Hewlett-Packard Co's board. Whitworth is currently chairman of HP.

(Reporting by Phil Wahba and Nadia Damouni in New York)