|"Only dull people are brilliant at breakfast"
|"The liberal soul shall be made fat, and he that watereth, shall be watered also himself."
-- Proverbs 11:25
Whitman's fabled $1 billion in wealth was acquired in the first few months of her tenure, well before she could muck the company's bottom line up. That billion-plus that eBay's directors handed Whitman was perhaps the easiest billion anyone has ever been handed in corporate history: eBay hired Whitman in March 1998, when the company was already the tech world's darling. Just six months after she joined, eBay went public, making Meg Whitman an overnight billionaire thanks to stock options that allowed her to buy eBay stock at just 7 cents a share, and sell them on the market for as high as $170 per share.
That was in 1998-'99, long before Whitman could screw the company up -- when the worst she could do was work out a scheme with Goldman Sachs to kick back to her personal account a couple million more in exchange for making Goldman Sachs the lead investment bank for eBay's stock offering.
So Whitman made her eBay billion not by building the firm up, but rather by lucking into the right place at the right time. Over the next few years, as she started to put her own stamp on the firm, eBay's fortunes went into decline and finally into full-scale tailspin.
Now cut to 2005, when Whitman is fully in control of eBay. By now, in the middle of the last bull market, eBay's stock is floundering thanks to a series of poorly executed decisions, bad investments and frustrated eBay users. This was the moment when Whitman went from incompetent to reckless: she bet the eBay house on a grossly overpriced $4.1 billion takeover of Skype, a startup internet phone company with almost no revenues to speak of. Even normally friendly analysts were confused, not just by the price but also the business logic.
Two years later, as the grim results trickled in, analysts were still scratching their heads. CNBC's Silicon Valley bureau chief wrote in October 2007, at the peak of the bull market, "I remember when eBay bought Skype for that staggering $3.1 billion and scratching my head, wondering what the connection was. I remember talking to CEO Meg Whitman soon after the deal was announced, listening to her tell me that Skype would make as much sense and be as important to eBay as PayPal was. I remember nodding, listening. And I remember still scratching my head." Today, investors are scratching their collective heads: eBay de-valuing the Skype asset by 46 percent or about $1.6 billion.
So already by October 7, the grossly inflated price resulted in a $1.6 billion writedown of losses to tack onto the buy price. And this was before things got really bad. See, as it turned out, Whitman didn't just overpay for Skype--she overpaid, and didn't even own Skype.
That's right, when Whitman signed on the dotted line and plunked down $4.1 billions, she did not buy the technology that made Skype work, but instead leased it from Skype's original creators--who were under no obligation to continue the lease.
But by October 7, 2007, investors were already getting fed up with Whitman's helmsmanship. This was the high-point of the last bull market bubble, and yet eBay's stock on this day was slightly lower than where it was in September 2005, when the Skype deal was first announced. Meanwhile, eBay's biggest competitor, Amazon.com, saw its stock price soar 122 percent over the same two-year period as Amazon made smart investments and wooed clients and customers away from eBay in droves.
It's no wonder then that Whitman "retired" from eBay when she did in early 2008: She had failed the company miserably, leaving eBay in ruins. A year after Whitman bailed on eBay, the stock had sunk so low that employees were left holding onto stock options that would actually cost more than than eBay's market stock price, making them worse than worthless. That's a far cry from the 7 cents per share that Whitman was handed after just a few months on the job -- but as any economics student knows, the laws of scarcity dictate that there's a limited number of 7-cent stock options to be had, and to make up for that, others -- every other, in fact -- have to take stock options that are worthless. And it's a far cry from the tens or hundreds of millions more in stock options profits Whitman cashed in between February 2007 and February 2008,when she unloaded another 6.4 million shares of eBay between February 2007 and February 2008, in a move some criticized as legally questionable and in possible violation of insider trading rules.
The question we should ask ourselves is, was this failure at eBay a one-off thing, or was it part of a pattern in Whitman's executive resume? The answer isn't pretty, assuming she wins the governor's race.
In the years before Meg Whitman settled into her eBay gig, she bounced around from one corporate disaster to the next, showing neither loyalty nor follow-through and commitment: Think Sarah Palin of the corporate world. In 1992, Whitman headed up a children's shoe division at Stride Rite, including Keds brands -- and just about exactly one year later, several states filed lawsuits against Stride Rite accusing the firm of price-fixing its products, in particular, Keds. The company was forced to pay millions in fines and cover retailers' losses as part of the settlements.
With that disaster out of the way, Whitman failed her way into the CEO spot at FTD.com, the online florist shop. It should have been a cinch: Whitman was handed a 75-year-old non-profit florist association that had been a virtual monopoly business with an international presence, but was convinced by an ex-Goldman Sachs executive to convert into a private for-profit company, with the Goldman Sachs exec's hedge fund as the investor. It might have worked out well, but for Meg Whitman's leadership. In 1997, just two years into her tenure, Whitman bailed on FTD. The florist company's business had fallen almost by half, posting a new low of 12 million orders in 1997, down from 22 million orders a decade earlier.