Risk & Compliance

Out of the Frying Pan …

Activist Carl Icahn pushes for governance changes at upcoming spinoffs from eBay and Gannett that would leave them vulnerable to takeovers.
Katie Kuehner-HebertJanuary 23, 2015

Activist investor Carl Icahn this week furthered his efforts to jump on two upcoming spinoff companies once they separate from their parents.

According a Wall Street Journal article Thursday, Icahn and eBay hammered out governance rules for PayPal after the San Jose, Calif., company spins off the unit. The rule changes leave open the door to corporate suitors of PayPal. Now, Ichan is urging Gannett, of which he owns a 6.6% stake, to establish similar rules for both its publishing business and its broadcasting business when the two lines are separated later this year.

The changes at PayPal call for a staggered board, at least a 20% shareholding trigger before any poison pill activates, and allowing special meetings to be called by holders of 20% of the stock.

A Better Way to Do Ecommerce

A Better Way to Do Ecommerce

Learn how Precision Medical leveraged OneWorld to cut the cost of billing in half and added $2.5M in annual revenue.

“The point is, the company owes the right to its shareholders to determine if they want to be sold if somebody wants to buy it,” Icahn told the WSJ, adding that he plans to nominate two directors for Gannett’s board at its annual meeting. “The shareholders should decide, not the board.”

However, Gannett’s nonexecutive chairman Marge Magner told the paper, “We are surprised by Mr. Icahn’s aggressive actions, including his threat to run a proxy contest to force wholesale changes in Gannett’s corporate governance and dictate the corporate governance of a company whose governance profile has yet to be determined.”

Last October, Gannett CFO Victoria Harker said of the company’s publishing business, “… it is now much more efficient and cost-effective and producing a lot more cash. We have the local newspapers in 81 markets; many of them also have USA Today content, and that’s hugely appealing to consumers. So it’s a very interesting business model, and it’s the kind of growth opportunity that happens only in a place like Gannett, where you have a national footprint and the kind of capabilities that we have to leverage.”

At PayPal, net total payment volume grew 24% in the fourth quarter. Revenue grew to $2.2 billion and PayPal gained 4.6 million new active registered accounts.

Spinoffs have surged in recent years, with U.S. companies announcing a record 65 spinoffs in 2014 in response to shareholder pressure to slim down, the WSJ reported.

Roughly half (55%) of the last year’s spinoffs staggered their director elections in an effort to slow down any hostile takeover process. Moreover, nearly two-thirds of them didn’t give investors the right to call special meetings and many of them established high voting thresholds to effect corporate changes, the WSJ said.

Source: Wall Street Journal