No love is ever lost between Carl Icahn and Bill Ackman. The two activist hedge fund managers are at odds again, with Ackman clearly enjoying watching Icahn’s holding company be attacked by short sellers.
Icahn Enterprises (Ticker: IEP) stock continued to slide Thursday morning, falling nearly 21% to around $19. That bodes well for a more than 60% loss from levels above $50 in early May before a short seller report targeted the shares.
Ackman posted an ultra-long tweet on Wednesday evening and sided with short seller Hindenburg Research, which released a detailed report on May 2 detailing its findings on Icahn Enterprises. Hindenburg called the stock overvalued relative to the net worth of its assets — which include several wholly-owned companies and a portfolio of publicly traded stocks — and argued that its generous dividend is only backed by financial engineering and is unsustainable. Famed corporate robber Icahn responded with a pugnacious response, calling the allegations self-serving and promising to fight back against Hindenburg.
Ackman, CEO and portfolio manager of Pershing Square Capital Management, tweeted Wednesday night about the dispute. He didn’t hide his joy at Icahn’s misfortune.
“Icahn’s favorite Wall Street saying, ‘If you want a boyfriend, get a dog,'” Ackman wrote. “Icahn has made many enemies throughout his storied career. I don’t know that he has real friends. He could use one here.”
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Certainly not friends, 87-year-old Icahn and 57-year-old Ackman sometimes take opposing sides when it comes to investing in a long-standing feud that mixes business and personal disagreements. The managers engaged in a televised argument over Herbalife in 2013 that went viral in the investment community.
In his brief report, Hindenburg argued that Icahn Enterprises’ stock could only trade at a huge premium to its asset value because of its generous dividend yield — before the declines, it was around 16% — and that it could meet its quarterly payment by selling shares fund. The math works as long as the stock trades at a premium to net asset value, or NAV, which was about 3.2 times as of May 1, and as long as Icahn, who owns about 84% of the company, chooses to pay inventory, drastically reducing the cash outlay required.
“A sustainable bounty requires trust in Icahn and $IEP,” Ackman wrote on Twitter. “If Icahn were to sell shares, the stock would likely fall sharply as the backlog of additional sales and the resulting further loss of confidence would prompt other shareholders to exit before the tide. The problem Icahn has is that his system was outed by @HindenburgRes. Transparency is not $IEP’s friend.”
Ackman’s own Pershing Square Holdings (PSH.Netherlands), its primary investment vehicle, trades at a significant discount to its net asset value.
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Carl Icahn has pledged a large portion of his Icahn Enterprises stock as collateral for margin loans. Ackman pointed out that the stock’s decline would potentially force Icahn to post more shares. He compared the situation to heavily indebted Archegos Capital Management, which exploded in early 2021 after facing multiple margin calls from its lenders.
Ackman wrote, “$IEP reminds me a little of Archegos, where the swap counterparties were comforted by the fact that each had relatively less risk in the situation.” The problem is that multiple lenders lead to a more chaotic situation. All it takes is for a lender to break out and liquidate interests or attempt to hedge before the house collapses. Here the scapegoat is the last lender to liquidate.”
Ackman is just watching “from a distance” and says he has no long or short interest in Icahn Enterprises stock. But that doesn’t mean he doesn’t enjoy watching his rival squirm.
Write to Nicholas Jasinski at [email protected]