Icahn's Battle With eBay Isn't Over

The S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  )  were down 0.2% and at breakeven, respectively, at 10:20 a.m. EDT. On any another day, this morning's news that new jobless claims fell to a near seven-year low last week might have pushed stocks higher, but perhaps yesterday's "Fed pop" has already absorbed any bullish elan. In individual company news, eBay (NASDAQ: EBAY  ) and activist investor Carl Icahn announced this morning that they have agreed to a cease-fire -- but the market's reaction suggests investors would have preferred to see the hostilities continue.

Following an aggressive war of words and the threat of a proxy battle with the e-commerce company, Icahn tweeted this on Thursday morning:

What exactly is the nature of this agreement that makes Icahn "extremely pleased"? First, he is ending his proxy contest by withdrawing his proposal to separate the eBay's PayPal business and his two nominees for board representation. What does Icahn obtain in return? On his advice, eBay has agreed to add David Dorman as the 10th independent director to its 12-member board. Dorman is a founding partner of Centerview Capital Technology, part of private investment firm Centerview Capital; prior to that, he was the chairman and CEO of AT&T.

That's it? The famously combative Icahn is giving up his drive to see PayPal become independent in exchange for one board ally? Well, not quite. Even the carefully crafted press release says otherwise, with Icahn making his determination very clear in following quote:

[eBay CEO John Donahoe and I] both strongly believe in the great potential of eBay and PayPal, and I have found a number of his ideas to be extremely compelling. However, I continue to believe that eBay would benefit from the separation of PayPal at some point in the near future and intend to continue to press my case through confidential discussions with the company. While John has made no commitments regarding such a separation, he and I have agreed to meet regularly when he is in New York to discuss strategic alternatives.

The agreement also sets certain parameters for these confidential discussions:

Icahn has signed a confidentiality agreement covering any non-public information that directors and certain officers of the company may share with him. In addition, the company agreed not to adopt a policy precluding such persons from speaking to Mr. Icahn, and that it would advise them that they may speak to Mr. Icahn if they are willing to do so.

Donahoe put a positive spin on things in an interview this morning on CNBC, saying that the agreement indicates that Icahn intends to be a long-term shareholder of eBay. Long enough to see the company spin off PayPal, perhaps! Personally, I wouldn't qualify Icahn as a "long-term shareholder" of anything. The market is reacting negatively to the news of the agreement, with eBay shares down 2% at 10:20 a.m. EDT. It seems to me that the war battle between the two parties has not ended, it has simply become a bit more civilized. This story bears watching; mark my words, Icahn's work is not over yet.

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