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Why Carl Icahn Won't Go Activist on Google or Facebook

Carl Icahn is on a roll. He seems to be winning left and right. He hit a home run with his investment in Netflix. He won with Actavis's $25 billion acquisition of Forest Labs

He is now calling for eBay to spin off PayPal. It seems corporate boardrooms across America listen to the activist investor.

That being said, here are three reasons why Carl Icahn won't go activist on Google  (NASDAQ: GOOGL  )  or Facebook  (NASDAQ: FB  ) :

Growth stocks are harder to unlock value from
First of all, Google and Facebook are growth stocks. Most of a growth stock's value is in the future. A spin-off or stock buyback for a growth company would not unlock value because there isn't that much value right now.

Stocks are on a roll
Second, these companies are already on a roll. Google is up over 50% over the past twelve months while Facebook is up 150% in the same time frame. The investors of Google and Facebook are probably very happy. Happy shareholders don't want change. 

Founders own the majority of the voting stock
Third, and most importantly, the two companies are controlled by their founders. Even though the founders don't own the majority of the shares, because both companies have dual class share structure, the founders own the majority of the voting rights. So even if Carl Icahn managed to convince all the other shareholders, if Mark Zuckerberg or the Google guys don't go for it, it would be a wasted effort.

The bottom line
Because the Google and Facebook founders have majority voting control, Carl Icahn is not likely to go activist.

I think it is good thing that those founders have majority control.

Founders tend to manage companies for the long term rather than the short term. In technology, where things change very quickly, running a company to meet quarterly numbers when competitors are focused on the long term is pretty dangerous.

A great example of this would be Facebook and MySpace. Because News Corp  (NASDAQ: NWS  ) acquired MySpace, MySpace executives ran the website to optimize profits. They added ads to the site while Facebook did its best to keep ads off. MySpace users didn't like the ads and flocked to Facebook. Facebook is now worth around $170 billion while News Corp sold MySpace to Specific Media for about $35 million.

Having majority voting control also allows the founders to take chances that a normal CEO would not take.

It allowed Mark Zuckerberg to spend $1 billion to buy Instagram, which for all intents and purposes appears to be a great acquisition. Admittedly, this is early in Instagram's monetization stage, but user growth is encouraging.

It allows Larry Page to support Google X, which is working on many innovative products that may pay off big-time. 

While that type of spending would likely put pressure on any normal CEO, having majority voting rights insulates the Google founders and Zuckerberg. It allows those founders to plan for the long term rather than pleasing Wall Street every quarter. It also keeps Carl Icahn from being an activist investor for their stock.

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  • Report this Comment On March 01, 2014, at 4:16 AM, PhilipCohen wrote:

    Notwithstanding that I am otherwise a vociferous critic of eBay, this time I have to agree with Johnny Ho that eBay should not let go of “PreyPal”. As great a fool as he is, Johnny Ho knows that without its existing integrated relationship with the eBay marketplace, the value of the clunky “PreyPal”, as a stand-alone, would be reduced catastrophically (eBay actually generates ~30% of PayPal new users with no customer acquisition costs for PayPal and half of PayPal's profits come from transactions on eBay where “PreyPal” is well integrated); and, worse still, without “PreyPal”, the value of the eBay marketplace would be reduced by some 40% (“PreyPal” currently contributes ~42% of eBay’s profits) …

    I hate to admit it, but for once Johnny Ho has got it right; with respect to “PreyPal”, Carl Icahn does not know what he is talking about and clearly has no understanding of the value of the inextricable and mutually supporting nature of the incestuous relationship between these two clunky, disingenuous, unscrupulous, commercial entities, and in particular, the precariousness of PayPal’s clunky business model …

    Regardless, none of the above can outweigh the fact that Johnny Ho is otherwise a talentless, destructive, narcissistic sociopath and that under his direction eBay Inc. is proceeding down the toilet and is ultimately going to finish up at the sewage farm …

    The fact is, notwithstanding the amount of disingenuous noise that constantly emanates from the eBay Dept of Spin, “PreyPal” is a clunky middleman riding precariously on the backs of the retail banks existing payments systems, and it has little more than one percent (~1.1%) of the world’s total payments business (and even then much of that is funded via MasterCard/Visa sources); the “bankcards”, MasterCard and Visa, have ~90% thereof between them and Amex has another ~8%, and both MasterCard and Visa have recently launched their own professional mobile/plastic POS/online digital wallets…

    The reality is that the clunky PreyPal’s “best before” date is fast approaching; as a “stand-alone” operation that “best before” date would simply arrive even sooner …

    “Never ever hire an MBA; they will ruin your company.”—PayPal founder, Peter Thiel

    The ugly reality of eBay Inc.:

    eBay's crooked auctions marketplace ... bit(DOT)ly/11F2eas

    eBay Motors (UK sampling): Auction Fraud Galore ... bit(DOT)ly/I2gTEU

    eBay Motors XSS Redirect Scams in Action: video ... bit(DOT)ly/1d46NvE

    eBay/Gumtree / Barclays Bank Motors Scams … bit(DOT)ly/1c9Uwck

    eBay's clunky, unscrupulous "PreyPal" ... bit(DOT)ly/UVXx53

    The ongoing joke of it all ... bit(DOT)ly/YvxFEg

    Fun quotes from the eBay executive suite ... bit(DOT)ly/12xvzyA

    On Facebook ... facebook(DOT)com/groups/formerebaysellers/

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Jay Yao

Jay is an energy and materials writer. He reports on oil and gas fundamentals and macro trends in the industry.

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