An activist hedge fund that has amassed a substantial stake in eBay on Tuesday pushed for spinning off StubHub and its classifieds unit, saying it would free up the San Jose company to focus on its core marketplace business.
In a letter to eBay’s board, Elliott Management said it has a $1.4 billion, or 4 percent, stake — making it one of the e-commerce company’s biggest shareholders. The hedge fund presented a plan that it says will boost eBay’s value to $55 to $63 a share, an increase of 75 percent to 100 percent, in the next couple of years.
“Elliott believes that eBay is worth far more – but change is urgently needed to address both public perceptions and real business issues,” wrote Jesse Cohn, a partner at Elliott. Those issues include what it called “prolonged, self-inflicted misexecution” that has caused eBay Marketplace to be “deeply undervalued.”
Shares of eBay rose sharply after news of the letter, up 8.39 percent to $33.60 in early trading. The stock had fallen about 33 percent through Friday since its 52-week high of $42.79 in February 2018.
Because Elliott believes ticket seller StubHub and the classifieds business would be worth more on their own, it wants eBay to shed those businesses. The hedge fund also wants eBay to improve Marketplace’s technology and operations, saying that “despite its remarkable history as one of the world’s largest e-commerce platforms, eBay as a public-company investment has underperformed both its peers and the market for a prolonged period of time,” mentioning its biggest competitor, Amazon.
“We appreciate Elliott’s recognition of the strength and power of eBay’s business and will carefully review and evaluate Elliott’s proposals,” an eBay spokesman said Tuesday.
The Wall Street Journal reported Tuesday that another activist investor, Starboard Value, also is putting pressure on eBay to make similar changes.
Starboard has not returned a request for comment.
Online auction pioneer eBay is no stranger to activist investors. In 2014, corporate agitator and billionaire investor Carl Icahn successfully pushed for the eBay and PayPal split.
Elliott Management pressed online marketplace eBay Inc. (EBAY – Get Report) to adopt a plan to increase shareholder value, accusing management of “underperforming its peers and the market for a prolonged period of time.”
Elliott, which said it controls a 4% stake in eBay, said management should “turn its singular attention to growing and strengthening marketplace”, asserting the group is “far from broken, and its future should be bright”. Elliott’s five-step plan, the activist said, outlines a value creation opportunity that would take the path of Ebay shares to between $55 and $63 each by 2020.
“Despite its remarkable history as one of the world’s largest e-commerce platforms, eBay as a public-company investment has underperformed both its peers and the market for a prolonged period of time,” Elliott said in a letter to the company’s board of directors. “While eBay’s core Marketplace continues to enjoy sustained growth and the two other franchises that eBay owns, StubHub and eBay Classifieds Group, are thriving, eBay suffers from a deeply depressed valuation due to its history of misexecution.”
“Elliott believes that eBay is worth far more – but change is urgently needed to address both public perceptions and real business issues,” the letter added.
eBbay shares were marked 11.3% higher in the opening minutes of trading and changing hands at $34.51 each, a move that takes the stock back to levels last seen in early September and values the San Jose, Calif-based group at just over $33.2 billion.
Elliott, whose stake is now valued at around $1.4 billion, wants eBay to engage in a “full operation review of how it spends and develops its funds”, with an aim to increase operating expenses by $250 million from 2018 to 2021.
It also said eBay’s event ticketing business, StubHub, has a value of between $3.5 billion and $4.5 billion, compared to a range of $8 billion to $12 billion for the group’s classified advertising division.
The Wall Street Journal reported that another activist investor, Starboard Value LP, has built a similarly-sized stake in eBay and may push for the group to spin off StubHub and the classifieds division in order to create more shareholder value.