Popular E-commerce giant, eBay, just got itself a new ‘boss,’ after an hedge fund activist, Elliot Management, purchased 4% of eBay’s stake for a sum of $1.4 billion.
Get Ready for a New Ride
Elliot Management made news of its subtle take-over, by addressing a general letter to the company’s board of directors. Elliot’s new acquisition is solely meant to place the notable hedge fund firm at the driving seat of the online retailing company.
By acquiring 4 per cent of eBay’s stake, the firm automatically became an activist shareholder. Elliot is an activist shareholder in a number of companies, and the new milestone made with eBay is no coincidence whatsoever. By assuming the position of an activist shareholder, Elliot could pressure the management to take certain actions by virtue of its new equity position.
In the new letter addressed to all board directors, the firm informed in great details how it sees the retailing company going forward. Changes are going to be made, necessary ones at that, and the firm is ready to take eBay to a whole new level, after stressing that performance levels have reduced in the company over the years. Despite the unbiased and sharp nature of Elliot’s assessment of eBay’s production level and the need for changes, the firm acknowledged the retailing company is the not the second largest online retailer outside China by chance, it had successfully adapted over the years.
“As a successful third-party marketplace, eBay thrived through the dot-com crash, the 2008-2009recession, and the more recent retail challenges because it has demonstrated resilience in the face of changing market demands,” an excerpt from the letter read.
A lot of restructuring is going to be done, and Elliot Management has made certain of that in the letter. The firm has outlined a major objective of raising eBay’s stock price to a target range between $53 and 63$: this would be a thumping increase of about 75 percent to 100% as regards to its current stock price. The letter explained why change is needed; suggesting that the current $33 price of eBay’s share is a poor reflection of its true valuation.
“EBay suffers from a deeply depressed valuation due to its history of misexecution. Elliott believes that eBay is worth far more. But change is urgently needed to address both public perceptions and real business issues”
Elliot firm has also warned that some personnel could be laid off. While it hopes to work with the current crop of staffs, the firm believes the best talent should only work at the company.