(BFM Bourse) – Carl Icahn finds himself targeted by Hindenburg Research, an activist fund which questions the valuation of his holding company as well as its practices, which it looks like a Ponzi scheme.
Carl Icahn is certainly one of the best known activist investors in the world. The market operator who owns his own listed company, Icahn Enterprises, has made a name for himself in multiple campaigns.
He was notably confronted with the PC manufacturer Dell in 2013, wanting to block its plan to be taken over by its founder, Michael Dell. In 2008, he had wanted (unsuccessfully) to overthrow the board of directors of Yahoo!, dissatisfied with the rejection of Microsoft’s takeover offer. More recently, in February 2022, the investor had pushed the candidacy of two members for the McDonald’s board of directors, so as to pressure the group to amplify its fight against animal abuse. Which had also resulted in failure.
This time the octogenarian Wall Street star finds himself under pressure. An activist fund, Hindenburg Research, founded in 2017 by investigative investor Nathan Anderson, published a vitriolic note on his company on Tuesday.
Stock market plunge
Icahn Enterprises enjoys a very high valuation premium to its net book assets (218% at the time of the report’s publication), according to Hindenburg. The fund believes that the attractiveness of this company’s share is due to its very high dividend yield of 15.8%. However, this dividend is not fed by the operational performance of the management company, which has been “negative for years”, points out Hindenburg.
“In short, Icahn used new investors’ money to pay dividends to old ones. Such Ponzi-like economic structures are only viable to the extent that new investors are willing to take the risk of being the last to “hold the bag”, “she asserts. Hindenburg obviously took a short position on the stock.
Unsurprisingly, these accusations were strongly denied by Icahn Enterprises (IEP). “We stand by our public statements and believe that IEP’s performance will speak for itself over the long term, as it always has. Today, IEP is in a strong position with approximately 2 billion dollars of cash and cash equivalents on its balance sheet as of March 31, 2023 to execute our strategy,” Carl Icahn said in a statement. For him, the report published by Hindenburg has the sole purpose of generating profit on his short position.
This did not prevent the action from taking on water. The Icahn Enterprises LP title has fallen nearly 40% since Tuesday on Wall Street.
“The hunter is now hunted”
“The hunter is now hunted,” Bloomberg said in an editorial. “Hindenburg has proven himself, both by being right in his theses and by being just as stubborn as the famous activist investor”, points out the agency. “But perhaps more importantly, his criticism of IEP, Icahn’s main investment vehicle, is clear and, on the face of it, difficult to refute,” she continues, warning however betting against Icahn is very risky.
Remember that Hindenburg is indeed far from being at its first attempt. The investment company recently plunged the gigantic Indian conglomerate Adani, founded by the richest man in Asia, Gautam Adani, into the stock market, accusing him (in particular) of accounting manipulation. In 2020, Hindenburg accused electric and hydrogen vehicle maker Nikola of fraud, accusing it of lying about its technologies and performance. At the end of 2021, the American stock market policeman, the Securities and Exchange Commission (SEC), had sentenced Nikola to a fine of 125 million dollars for having deceived investors.
Julien Marion – ©2023 BFM Bourse