EBay is worst-run company I have ever seen: Carl Icahn

Edit: Also, one of the big things a lot of activist investors try to force companies to do is issue a larger dividend (or just issue one if the haven't) or buy back stock. These things are good for the shareholders not necessarily the company. It's important to remember that Icahn is a shareholder and is interested in taking care of shareholders not companies.

I have not gone through the whole paper myself, but it was noted in one of the books I read recently (I forget which one specifically mentioned it, I think John Bogle's "Enough").

[1] http://www.fdic.gov/bank/analytical/CFR/2006/oct/hedge_fund....

"I can't remember if the car left first, or the girl left first".

http://tunesviewer.sourceforge.net/

The process proceeds along the following lines:

1. Acquire a stake of more than 5%, which requires a public filing with the SEC. This is very key as now the public has a verifiable way of knowing Icahn has a stake.

2. Write a letter to the board and/or management demanding changes to the structure of the company or use of its large cash pile(if applicable). This usually takes the form of a spin-off or buyback/dividend proposal. (Buybacks are more favorable these days due to tax considerations.)

3. The stock price increases at least 10% after it is announced Icahn has taken a stake. Icahn can sell here and take his profits home; 10% annualized is a very large gain.

3. Management predictably scoffs at Icahn's demands or arranges a show for shareholders in the form of a one-on-one meeting with the CEO or something along these lines. Nothing tangible happens.

4. Icahn sometimes is able to pressure firm management/board into buybacks or dividends, which only adds to Icahn's paper profits (see 3). This is usually done through the very real threat of going directly to the shareholders with a proxy to elect new board members. Even if this is unsuccessful Icahn still has achieved 3.

This is known as the 'Icahn tax'. Due to name recognition and a strong track record Icahn is able to exert pressure on firms for a quick and easy buck. Nothing more.

I hung out with a bunch of Verizon mobile executives around 2006-2007. You have never seen so many morons working at one place. They were all supremely frattish (is that a word)? Far as I could tell, their main skillset was drinking and playing politics well.

I would try to explain to them how it was important to make Verizon phones and their certification process more developer friendly, and their eyes would literally glaze over as they diverted the conversation back to sports and drinks.

I left that industry, but I got the distinct impression that Verizon's team did not promote based on technical IQ, competence, or industry-savvy. And these guys were all VERY well paid. Nice late-model Beemers. Nice suits. Contribution to the company ... nil, far as I could see.

It's surprising that, in my experience, corporations are administered with a greater degree of freedom, more inattention-to-detail and a greater degree of laxity in operations than government agencies. I have heard "Good enough for government work" and other government-related jabs during conversations and cocktail party exchanges countless times. But, my experience is that industry as a whole is not as well organized and has much less oversight than most government entities.

The thing is, he's not exactly wrong about CEOs, but in my experience the absolute worst ones come out of private equity -- in other words, from within Icahn's world. These are guys who generally became "turnaround CEOs" of large companies in their 30s (or even 20s), and never grasped the idea that there's a difference between the architect and the wrecking ball. They're absolute disasters when they try to actually run a company, because all they know how to do is kill dogs and milk cows.

Icahn's "activism" is broadly similar, robbing from companies' long-term plans to boost short-term investor profits. He also likes to lay about with the axe handle; his accusations of eBay board malfeasance exist at the intersection of ignorance and ambition.

Case in point: his Skype accusations. It's not like Skype was overperforming when eBay sold it off; eBay had failed to make use of the company's tech, and the sale let them keep about 35% of the value in the company while letting someone else run it. If I recall, they bought the company for about $3b, sold 65% off for a hair under $2b, and then got $2.5b from the MSFT purchase. Icahn seems to think that MSFT's valuation indicated that eBay could have sold that turkey for more, but that seems unlikely -- when MSFT bought it, Skype had put its IPO on indefinite hold, and no one else even put in a bid, which indicates that if anyone should be furious, it's Redmond's own shareholders.

There is definitely something to be said for execs protecting their position rather than their company, especially when they are paid subjectively rather than corporate performance. (Or if they take corporate performance as a given)

Here is the case against activists having a positive impact (which I disagree with, but share for the sake of being balanced): http://blogs.wsj.com/riskandcompliance/2013/09/30/lipton-tak...

Here is a paper that I agree with that highlights the persistent positive impact of activists: http://econ.as.nyu.edu/docs/IO/30891/AlonBrav.pdf

He bled TWA dry:

http://en.wikipedia.org/wiki/Trans_World_Airlines#1990s

In Apple's case, Apple looked really smart in 2008 for having money in the bank when there was a cash crunch in money market funds and people had trouble getting short-term operating funds. They look smart when they use their funds to lock up a bunch of Flash Memory for their devices rather than buying as they need at higher prices.

But Icahn didn't care about the long term advantages of the bank account to Apple. He just cared about trying to squeeze some of it out in the short term.

However, my girlfriend buys a large quantity of good from eBay. These purchases seem to fall into two categories.

1. Clothing. In particular, very cheap dresses and clothes that are out of stock and discontinued on the brand's website.

2. Craft goods. Leather to make purses/wallets and scrap kimono silk are two examples that spring to mind immediately.

Nowadays Ebay is still the place to buy and sell specialty items, which will always be a multi-billion dollar market, but they've lost their position as the marketplace of the internet.

If I were Ebay I'd also worry that thanks to Stripe it's quickly becoming much easier to become the marketplace for a given category, and beat Ebay via specialization.