Carl Icahn-eBay (Nasdaq: EBAY) Fight Keeps Getting Nastier

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Carl Icahn is holding nothing back in his battle to force eBay Inc. (Nasdaq: EBAY) to spin off its PayPal payment processing business.

On the same day eBay rejected two of Icahn's nominees for its board, the billionaire activist investor fired off another open letter to the company's stockholders berating Chief Executive Officer John J. Donahoe's handling of the Skype deal.
Carl Icahn Ebay Fight
"We believe based on evidence we've uncovered that Donahoe's inexcusable incompetence cost eBay stockholders over $4 billion," the letter begins.

Icahn holds a 2.2% stake in eBay. In a fight that started in January, Icahn has sought to convince eBay to split PayPal off as a separate company, arguing that PayPal needs better management to face challenges from the likes of Google Inc. (Nasdaq: GOOG) and Apple Inc. (Nasdaq: AAPL).

In making that case, Icahn has launched a series of attacks on Donahoe.

In the letter released today (Monday), Icahn alleges that Donahoe bungled the Skype deal by selling it to a group led by Marc Andreessen - an eBay board member - for only $1.9 billion. Just 18 months later, Andreessen's group sold Skype to Microsoft Corp. (Nasdaq: MSFT) for $8.5 billion.

Icahn says that Microsoft had approached eBay about buying Skype back in 2009, but was wary of a licensing dispute. Andreessen resolved the dispute and pocketed a huge profit.

"Why didn't Donahoe, who allegedly also had the information that would be key to reaching a settlement with Skype's founders, settle it for eBay and sell Skype directly to Microsoft, thereby keeping the extra $4 billion for eBay stockholders?" Icahn wrote.

Icahn was also rankled by eBay's rejection of his nominees this morning.

eBay said it had given Icahn's candidates "serious consideration," but that neither are qualified.

In responding to Icahn's letter, eBay said that Donahoe had "delivered astounding results for eBay shareholders." The company added that Icahn's statements were "false and misleading" and made "in pursuit of his own profit motives."

Certainly, Carl Icahn's involvement in eBay has had an impact...

What the Carl Icahn Fight Means for eBay Inc. (Nasdaq: EBAY) Stock

Since this struggle began in January, EBAY stock has popped 9.5% - a testament to Icahn's towering reputation as a successful activist investor.

And most of that gain has come in spurts on news of Icahn's latest maneuvers.

But Icahn may find this battle difficult to win, as few on Wall Street agree that PayPal needs to be spun off. Most analysts see the eBay-PayPal integration as mutually beneficial.

"PayPal is a very important part of that company. It's the fastest growing division. It's 45% of the company. The digital-payment world is the world of the future, so they would be insane to sell, especially because Icahn only owns 0.8% of the stock," said Money Morning's Defense & Tech Specialist Michael A. Robinson.

He said that Icahn's quest for a quick payoff might work against eBay in the future.

"Activist investors can be a catalyst to make some short-term profits, but what I worry about is what's going to happen in the long run," Robinson said. "Specifically with eBay, I think Icahn is crazy on this one."

And even though Icahn has an impressive track record as an activist investor, he doesn't always win. A few weeks ago, he had to surrender in a battle to force Apple to buy back $50 billion of stock.

Unless Icahn's attacks gain more traction in the weeks and months ahead, his fight for an independent PayPal may run aground, much as his fight with Apple did (though that battle was far more civil).

Investors need to keep an eye on this battle. Should Icahn be forced to give up, as it now appears he will, EBAY stock could tumble.

EBAY shares were down about 1% to $58.61 in mid-day trading.

Is #CarlIcahn right about PayPal? Or is PayPal better off as an arm of #eBay? And is eBay stock a buy, sell, or hold? Tell us on Twitter @moneymorning or Facebook.

Carl Icahn is the most celebrated activist investor, but he's not necessarily the most successful. One activist investor in particular consistently gets double-digit gains out the stocks he targets. Here's how he does it...

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