US short seller Hindenburg Research announced a position against Icahn Enterprises – the publicly listed fund managed by activist Carl Icahn – knocking down its share price. This has set up a fight between two of Wall Street’s most outspoken and feared investors.
Hindenburg stated in a report published on Tuesday that Icahn Enterprises is overvalued, and some of the private assets are valued at an excessive amount. Icahn Enterprises’ shares fell by almost 20%, reducing its market cap to $14.3bn.
Hindenburg has targeted Icahn Enterprises this year, the third company of high profile Hindenburg . In January, the short seller Nathan Anderson and its founder were the focus of an international media frenzy after Hindenburg accused Adani Group of corporate fraud. The company denied the allegations.
Icahn is a legendary investor who has made corporate executives fearful. He has redefined the way public companies are managed and is currently in a bitter battle with Illumina, a genome sequencing company.
The dividends that Icahn Enterprises pays to its shareholders are at the heart of Hindenburg’s thesis about Icahn Enterprises. It says this has contributed to a “extreme” increase in its net asset value.
The short seller points out that similar vehicles such as those created by Bill Ackman’s Pershing Square and Daniel Loeb’s Third Point trade at a discounted price to their NAV.
Icahn Enterprises stated that it operates from a “position of strength”, citing approximately $2bn in cash and cash-equivalents on its balance sheets.
Carl Icahn stated in a press release that he believed the Hindenburg Research report was published today solely for the purpose of generating profits from Hindenburg Research’s short positions at the expense IEP’s unit holders who have held their units long term. We stand by all of our public disclosures, and we are confident that IEP will continue to perform as well over the long-term.
Icahn Enterprises pays its shareholders a dividend of $8 per share annually, but Icahn owns about 85 percent of the company. He receives his payment as newly issued stock. Hindenburg claims that the remaining investors receive their dividend payments in cash.
Hindenburg’s report states: “In short, Icahn used money received from new investors to pay dividends to older investors.”
highlighted that Icahn’s stock dividends had caused the outstanding shares of his company to explode over the past few years. Icahn Enterprises’ NAV has dropped by more than two thirds in the last decade due to stock dilution, investment losses and market hedges Icahn made during a bull-market.
“I didn’t want the cash to be taken out.” Icahn stated in February 2022 that he liked to use cash as his army.
Hindenburg noted that Icahn took a loan on 181.4mn Icahn Enterprises shares or the majority, as disclosed in the annual report.
Icahn stated in a filing of securities in February that he “had sufficient additional assets” to satisfy any obligations arising from these loans, without recourse to depositary units.