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Elliott Management Urges Change at eBay

The activist investment firm published a letter Tuesday revealing a 4 percent stake in the online retailer.

Investment firm Elliott Management is embarking on an activist campaign against online retailer eBay, arguing that the company is too diversified and lacks focus.  

In a letter published Tuesday by Elliott Management, the firm revealed that it owns a 4 percent stake in eBay, valued at approximately $1.4 billion. According to Elliott, eBay is underperforming its peers, despite its inherent value, and could be trading at between $55 to $63 per share.

That would mark an increase of at least 77 percent over Friday's closing price of $31 per share. Shares had risen by more than 5 percent as of midday on Tuesday. 

Elliott is seeking a meeting with eBay’s board of directors to discuss how the company can improve its value and wants eBay to engage in a full strategic review of its operations, the letter said.  

“While we believe that execution missteps and unclear focus have impaired value, eBay is far from broken, and its future should be bright,” Elliott’s letter said.  

The letter suggests that StubHub and eBay’s portfolio of classified advertisement properties would be more highly valued if the company separated those assets from its core operations via a spin-off or outright sale of those assets.  

“Rather than having to decide where to allocate resources — both capital and mindshare — eBay would be free to devote the entirety of its attention to marketplace, while a separate classifieds group and StubHub would be run in a manner best aligned with their outlook and investment needs,” the letter said.  

According to Elliott, other classifieds businesses have recently been sold in deals valued at more than 20 times EBITDA (earnings before interest, taxes, depreciation, and amortization). Elliott thinks eBay's classifieds business represents between $8 billion and $12 billion in value, which it could attain through a sale or a spin out. 

StubHub’s peers are also trading at high valuations, the firm said. According to Elliott, StubHub represents $3.5 billion to $4.5 billion in value. 

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The letter also suggests that eBay’s management should focus solely on its "marketplace” business, where its customers can both buy and sell. According to Elliott, that piece of the business has been neglected and could flourish with more attention. 

“As e-commerce penetration accelerates, it is clear that eBay’s unique buyer, seller, and geographic breadth make marketplace a highly attractive acquisition target for both financial and strategic buyers,” Elliott’s letter said, noting that if the marketplace was separated from classifieds and StubHub businesses, it would become a compelling acquisition target.  

Elliott is also calling on eBay to improve its organizational structure and to increase the capital it returns to shareholders via dividends.  

eBay responded to the letter on Tuesday, noting that it will engage with Elliott and focus on delivering value for shareholders. 

“We appreciate Elliott’s recognition of the strength and power of eBay’s business and will carefully review and evaluate Elliott’s proposals,” the company said in a statement. 

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