The term “investing legend” gets thrown around a lot, but in the case of Carl Icahn, it truly fits. He kicked off the modern era of corporate raiding by taking influential stakes in many companies and forcing changes to his personal advantage. In some cases (e.g., Trans World Airlines) this involved taking over and dismembering the firm, and selling off the pieces. He is considered by some measures to be the most successful “activist” investor ever. His personal wealth is (or was) on the order of $20 billion.

Icahn has rolled much of his personal holdings into a limited partnership called Icahn Enterprise L.P.  (IEP).  According to its blurb, “…Icahn Enterprises L.P., through its subsidiaries, operates in investment, energy, automotive, food packaging, real estate, home fashion, and pharma businesses in the United States and Internationally.” This partnership structure allows Icahn to cleverly avoid paying income taxes on the earnings from his enterprises. Another score for the old wolf.

This arrangement has also allowed us mere mortals to nibble on the crumbs from his table. IEP has paid a very large and growing dividend for more than ten years. Since 2019 it has paid $ 8.00 per year ($2.00 per quarter). This generous payout has made it popular among retail investors and has kept the price of IEP steady in the $50-$55 range for a number of years. This gives around a 15% yield.

It has always been understood that IEP does not actually generate enough cash to pay out $2.00 per quarter on every share, but since “Uncle Carl” owns some 82% of the shares and takes all his dividends in stock (again, to beat the taxman), it has all worked out. That is, until the past month, when IEP was the target of a “short attack” by the ominously-named Hindenburg Research. A short attack is when some outfit takes a short position in a stock, then publishes a report claiming all sorts of misrepresentation and malfeasance on the part of management, to scare the public into dumping the stock. The attacker pockets a tidy profit on their short position when the stock price tanks. Then on to the next victim.

Often, there is not much actual substance to a short attack, but in the case of IEP Hindenburg had something of a real case. Their claim is that the actual net asset value (NAV) of IEP is way, way below $50 / share, and even lower than the NAV officially reported by IEP. Hindenburg made lots and lots of other dire accusations, describing IEP’s operation as a giant Ponzi scheme. Ouch.  Also, it seems Icahn has actually lost his mojo in the past decade (he is 87), making several market bets that went sour and lost billions. Anyway, some of Icahn’s old victims are not sorry to see the former shark being mauled by tactics similar to those he once employed.

The IEP stock price quickly dropped from 50 to 30 when the short report came out, then rallied back to about 36 after Icahn gamely announced that the usual $2.00 dividend was still going to be paid (stock chart below). That is where I sold about half my IEP shares to de-risk my position (disclosure: I had bought a very small amount before the Hindenburg report).  The price then meandered around in the low 30’s for a couple of weeks, then started to slide down again.

Share price for Icahn Enterprises L.P. (IEP). Source: Seeking Alpha.

Icahn made numerous enemies in his career, including fellow corporate raider Bill Ackman. Icahn went very long on a company (Herbalife) that Ackman was heavily shorting, back in the day. One YouTube you can listen to a 2014 CNBC show where they had both called in, where they were hurling very personal insults at each other on the air.  Ackman recently piled onto the short thesis for IEP, tweeting that even after the recent fall in price, the shares were still overvalued by at least 50%. IEP shares promptly plunged another 14%, to under $20.  Icahn’s response: “Taking advice from Ackman concerning short selling is like taking advice from Napoleon or the German General Staff on how to invade Russia.”  Some things don’t change.