Why eBay’s Trials And Tribulations May Have Melted ICE’s Bid – For Now

There’s the lure, the deal – and then, perhaps, the “what now?”

As has been widely reported, the Intercontinental Exchange (ICE), which owns the New York Stock Exchange (NYSE), has made an offer to buy eBay.

The initial focus on Wall Street and beyond may have been, and may still be, the price tag: At a reputed $30 billion, the bid price was roughly 10 percent over eBay’s closing price coming into The Wall Street Journal report that shed some light on the offer.

Incidentally, the fact that eBay’s stock price traded “into” that market cap, and then a bit above, may signal that investors expect a higher, or competing, bid.

At this writing, no formal offer has been made public – and ICE itself said in a statement on Wednesday (Feb. 5) that it “approached eBay to explore a range of potential opportunities that might create value for the shareholders of both companies.” But, said ICE,  “eBay has not engaged in a meaningful way.”

We’ll speculate here that ICE clearly seems to have been interested in eBay – and, per the WSJ, had made an overture before. It may be that talks this time fell apart, or perhaps the haggling was on price, and ICE would wait to see something a bit more palatable.

But strategically, should an offer materialize, ICE would bid only for the core eBay marketplace.

We’ll get to what might lie behind ICE’s own drive to (seemingly) reinvent itself in a minute. But it’s worth noting how eBay got here – from a household name in online commerce to, increasingly, a firm faced with trials and tribulations.

Dueling Headlines

The same day that ICE’s reported bid hit the newswires, there was news of a different sort: the activist firm Starboard Value, also a significant eBay shareholder with more than 1 percent of the shares outstanding, disclosed a public letter stating that eBay has been less than effective in its efforts to execute on a strategy that would offload its classifieds business, and that its retooling of its key marketplace has also been found wanting.

As the letter contended: “It has been almost 12 months since these commitments, and there has not been enough progress. No clarity has been provided on a separation of Classifieds, the operating review targets anticipate only limited margin expansion while revenue growth has continued to decelerate, and the Company has neither added a new director nor announced the departure of an incumbent independent director.”

Starboard went on to state that “in order to achieve the optimal outcome, we believe Classifieds must be separated, and a more comprehensive and aggressive operating plan must be put in place to drive profitable growth in the core Marketplace business.”

eBay’s strategic review has been conducted with Starboard Value and another activist investor, Elliott Management, which owns about 4 percent of eBay shares. Along the way, the company sold its StubHub event ticketing business to Swiss firm Viagogo, an online resale marketplace, for a bit more than $4 billion.

The Core Business

Now, Starboard urges eBay to adopt a “stringent focus” on profitability by a “return to its roots in targeting its historical core buyer universe of ‘self-expressionists and treasure hunters,’ who are seeking unique, hard-to-find or value-oriented items.” That strategy should supplant the recent focus on newer merchandise that eBay has embraced.

eBay, for its part, has said it will pretty much stay the course, which will include a boost to its managed payments program. On the earnings call last week, interim CFO Andy Cring told listeners that “we will go hard at markets that we are in” and will “expand to markets in other quarters.” The company has said that it processed more than $2 billion for about 25,000 sellers. The idea is that managed payments is a key way to keep stickiness in the buyer/platform relationship.

Overall, eBay’s top line has been sliding, as evidenced by last week’s report, which showed that revenues were off 2 percent to $2.8 billion, and as measured for the full year, were up 1 percent to $10.8 billion. Marketplace platform revenues were off 3 percent year over year to $2.2 billion.

Staying the course, if that is the strategy, would mean competing with other online platforms, which are showing growth (for example, Etsy has been growing gross merchandise value and revenues at double-digit percentages). And as the niche sites are growing, the Amazon behemoth is also growing.

Not so much the case for eBay. The active buyer count in the last quarter was up 2 percent to 183 million.

Beyond staying the course, there seems to be a little wiggle room, as eBay has said it is open to opportunities to boost shareholder value – which, in the investment world, may as well be code for “we might be up for sale.” Might the tactic of not “engaging” – as ICE has stated in its own update – be like playing hard to get?

Enter ICE

Beyond the price tag, it’s telling that ICE wants to have eBay’s core business – and the $10 billion that is the purported worth of the Classifieds? No, thanks. Starboard has pointed out that the marketplace and Classifieds essentially compete for the same listings and the same customers.

“We are not in negotiations regarding the sale of all or part of eBay,” said ICE.

But also on Wednesday (Feb. 5), ICE said it has agreed to acquire Bridge2 Solutions, which focuses on loyalty solutions for merchants and consumers. Financial terms were not announced, but the company said that its Bakkt subsidiary will acquire Bridge2 Solutions from ICE. Bakkt focuses on digital assets such as bitcoin futures and options.

Again, we’re speculating that combining loyalty with digital assets such as cryptos seems to be preparing for a future where digital coins are part of the broader commerce landscape.

Bloomberg has speculated that an ICE/eBay combination seems puzzling. And yes, there is a bit of apples-to-oranges at work here, as ICE focuses on financial services and eBay, of course, focuses on the consumer. But when it comes to eBay, it’s likely the plumbing and not the house that draws ICE’s interest. What it can do with that infrastructure, conceptually, is still an open question. Perhaps the firm is building, plank by plank, a bridge to the consumer.

The fact that, at this writing, eBay shares are down only 65 basis points, still holding above a $30 billion market cap, indicates that investors are waiting on the next shoe to drop, and for an offer to emerge. ICE’s (purported) bid may be on ice (sorry for the pun), but for eBay, things may just be heating up.