Getting active
It is great environment for activist investors. The amount of cash companies hold is higher than what they have held in the past. Scarred by the GFC companies are tending to hoard cash. Low interest rates and the current willingness for institutional investors to back activists to get things done is driving inflows for activist investors. Carl Icahn has been one if not the leading activist investor since 1980. CEOs might not pick up the phone when you call but even Apple the world's largest company picked up the phone when Icahn called. He even got a lunch date with Tim Cook Apple's CEO. He even argues with other activists. (See the classic Ackman vs Icahn fight on CNBC below.)
IEPs invetment segment includes as of April 30th 2014 includes positions in Apple, Forest Labs, eBay, Chesapeake, Herbalife, Transocean, Nuance, Talisman engering, Hologic and Navistar.
IEP stock in the activist fight
Its something we haven't really seen yet but Carl believes he can use his script (IEP) as currency to make acquisitions where appropriate. The stock pays a $6 annual distribution. IEP raised equity three times last year for a total of $581 million after fees. The most recent raise was at $135. He did not really need the money but because IEP is tightly controlled he needs liquidity. The million new shares substantially increase the float of shares available to investors. Though when one of the best investors is selling you do not want to be a buyer! Since the raising shares have fallen to where the stock is now $100 and yields around 6%.
According to IEP's calculations the stock trades at around a 30% premium to its net asset value. As a comparison Buffet would only buy back his Berkshire stock at 1.2x premium to book value (book value likely to understate market value). IEP's smaller size to Berkshire should make it more nimble and possibly produce higher investment returns though this is captured in the current premium to the investment value.
Like father like son?
There has been recent news that Carl's son Brett will launch his own activist fund. IEP will give Brett a billion in capital. IEP has been managing its own money only returning outside money in 2011. If Brett does well IEP will participate as IEP will own 35% of the new fund.
As Icahn quotes on his website "a lot of people die fighting against tyranny. The least I can do is vote against it." The premium to assets is high at the moment but Icahn is definitely someone you want in corner when you want something to get done.
Jason
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