CARL C. ICAHN RELEASES STATEMENT ON EBAY (EBAY)
IPO 20% of PayPal
We believe eBay could easily conduct an Initial Public Offering of PayPal, selling 20% to the public. eBay would retain 80% of PayPal with control. Before the transaction is consummated the companies could enter into a long-term, commercially viable contract, preserving all synergies. This type of relationship is customary in partial IPOs and would be particularly important for eBay as currently, outside of PayPal, there does not exist a global payment processing solution competent enough to service eBay’s users. Luckily for PayPal, competitors such as Google, Apple and many others do not yet have the same comparable scale and product offerings. (source)
Valuentum’s Take
There are a variety of ways that eBay can reveal its underpricing to the markets, and we continue to believe that Carl Icahn is serving as a necessary catalyst. The pricing of an IPO of PayPal and PayPal’s underlying “embedded value” within a consolidated eBay are two different measures, and the difference of which represents the primary gap between eBay’s share price (high $50s) and our estimate of the company’s intrinsic value (high $70s). We maintain our view that eBay’s shares are significantly underpriced, and we do not intend to make any changes to the actively-managed portfolios at this juncture.