Carl Icahn’s Icahn Enterprises (IEP) stock plummeted Thursday as Hindenburg Research announced a new short position in Icahn Enterprises.
In a briefing report published on Thursday, Hindenburg announced that it opened a short position in IEP bonds.
Icahn Enterprises shares fell about 5% on the news and are now down more than 40% since Hindenburg announced a short position in IEP common stock on May 2nd.
Hindenburg’s announcement comes a day after Icahn Enterprises announced its first-quarter earnings results. Icahn Enterprises also announced that a federal investigation into its business was launched the day after Hindenburg’s first briefing. Icahn Enterprises is cooperating with federal prosecutors, the company said in a statement.
Icahn himself responded to Hindenburg in a statement Wednesday.
“Hindenburg Research, founded by Nathan Anderson, would be more aptly described as Blitzkrieg Research given its tactics of wantonly destroying property and harming innocent civilians,” Icahn said in the statement. “Mr. Anderson’s modus operandi is to launch disinformation campaigns to distort company policy.” Their image is being tarnished, their reputation tarnished and the hard-earned savings of individual investors wiped out. But unlike many of his victims, we will not stand idly by. We intend to take all appropriate steps to protect and defend our shareholders.”
But Hindenburg countered on Thursday, specifically targeting Icahn’s personal loans he had taken out with IEP stock as collateral.
According to a press release, Icahn and “affiliated companies” own approximately 84% of Icahn Enterprises. More than half of Icahn’s personal stock was pledged as collateral for loans, according to an SEC filing highlighted by Hindenburg Research.
“We strongly suspect – based on our analysis, which we had not previously published – that Carl Icahn borrowed billions and reinvested some or all of the proceeds into his own mutual funds,” Hindenburg wrote.
So the drop in the stock price has caused Icahn’s personal net worth to drop, and it could also put pressure on his credit.
The story goes on
“A sustained decline in the market price of the Custody Units could increase the likelihood of foreclosure or foreclosure of the pledged Custody Units,” the SEC filing reads.
Billionaire activist and investor Carl Icahn gives an interview on FOX Business Network’s Neil Cavuto show February 11, 2014 in New York. Portal/Brendan McDermid (UNITED STATES)
Patrick Gadson, co-head of shareholder activism at Vinson & Elkins, said there are ways Icahn can fight back at Hindenburg.
Given the decline in the stock price since the first brief, the stock could be considered undervalued if Hindenburg’s allegations aren’t true. Icahn Enterprises could buy back shares of the stock at the perceived low price, which would reward shareholders, Gadson said.
In other scenarios, a third party could also siphon off shares at a perceived discount, boosting IEP shares and possibly unwinding the shorts. Icahn has played that role himself in the past, famously buying Herbalife stock as opposed to short Bill Ackman.
“Anyone who says they can stare into a crystal ball and predict exactly what is going on in IEP and management decision making is lying. The only thing we can say is, do they have any ways of giving the shorts a hard time? Yes.” Have you used all of these options? No,” Gadson told Yahoo Finance.
Josh is a reporter for Yahoo Finance.
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