In January, activist investor Elliott Management announced that it had acquired a $1.4 billion stake in online auctioneer eBay (EBAY 0.31%), representing an equity stake of over 4%. At the same time, the hedge fund laid out a five-step strategy called "the Enhancing eBay Plan" to maximize shareholder value, with Elliott estimating that eBay shares could jump 75% to 100% from then-levels to $55 to $63 -- sending the stock soaring in the process.
With eBay's announcement yesterday that it is selling StubHub, Elliott is notching a major win.
Image source: eBay.
Back to Baker
eBay is selling its ticket marketplace to viagogo for $4.05 billion in cash. eBay had previously acquired StubHub way back in 2007 for $307 million -- ancient history in the tech sector. viagogo is another secondary market for event tickets that was founded by Eric Baker, who had also co-founded StubHub but left the company before eBay acquired it.
"It has long been my wish to unite the two companies," Baker said in a statement. "I am so proud of how StubHub has grown over the years and excited about the possibilities for our shared future." The deal should give buyers a greater selection while reducing prices and giving sellers access to a massive network of fans, Baker added.
eBay nurtured StubHub into a meaningful business segment, generating just over $1.06 billion in net transaction revenue on a trailing-12-month (TTM) basis, its cut of the nearly $4.8 billion in gross merchandise volume (GMV) it facilitated over that time frame. When eBay first bought StubHub, it said StubHub revenue wasn't material enough to even bother disclosing.
However, StubHub's growth has been stalling, and Elliott argued that the subsidiary was a distraction.
Elliott's case
In its thesis that eBay is undervalued, Elliott argued that eBay's underperformance relative to the broader market -- as well as e-commerce peers -- is in part attributable to distractions.
"It is critical to recognize that eBay's sustained underperformance is not due to a lack of potential or a poor end-market," Elliott wrote in its open letter to eBay's board of directors. "Instead we believe that eBay has missed a number of actionable growth opportunities while distracted by non-core endeavors."
Specifically, Elliott argued that the "lack of focus on the Marketplace [segment] is most clearly evidenced by eBay's expansive portfolio and prior pursuits of non-strategic areas," such as Skype and Rent.com, among others. StubHub and eBay's broad portfolio of Classifieds properties -- which include international sites like the U.K.'s Gumtree, Germany's car marketplace mobile.de, Canada's Kijiji, and the Netherlands' Marktplaats -- are "high-value, strategic assets that are worth meaningfully more than the value currently being ascribed to them as part of eBay," in Elliott's view.
That's why the investor has been agitating for eBay to divest assets, as doing so could unlock significant value for shareholders. In other words, Elliott does not believe that eBay is worth more than the sum of its parts, and just scored a meaningful victory in its campaign to maximize shareholder value.
