In its latest report, short-seller Hindenburg Research targeted famous activist investor Carl Icahn’s publicly-traded holding company.
The company took a short position against “Icahn Enterprises,” citing various reasons but essentially accusing executives of “Ponzi-like” behavior. 🤯
Overall, their research claims IEP units are overvalued by 75%+ due to three key reasons:
- IEP trades at a 218% premium to its last reported net asset value (NAV), higher than all comparables
- They’ve allegedly uncovered clear evidence of inflation valuation marks for IEP’s less liquid and private assets
- The company has suffered additional performance losses year to date following its last disclosure
It also calls into question the company’s dividend, which has been paid consistently for 71 straight quarters and sits at ~15.8% annualized rate. It’s the highest dividend yield of any large-cap company, with the next closest at around 9.9%. In addition, Hindenburg found the dividend is often paid to Icahn and his son Brett, who own 85% of the shares, via new stock units instead of cash.
As a result, they cast doubt on the company’s overall financial health and ability to pay the $2 per quarter cash dividend as expected. As a result, they believe IEP will have to cut or eliminate the dividend entirely. ✂️
The full report has a lot to get into, but these two bullets summarize the overall sentiment. 👇
- “In brief, Icahn has been using money taken in from new investors to pay out dividends to old investors. Such ponzi-like economic structures are sustainable only to the extent that new money is willing to risk being the last one “holding the bag”.”
- “Overall, we think Icahn, a legend of Wall Street, has made a classic mistake of taking on too much leverage in the face of sustained losses: a combination that rarely ends well.”
$IEP shares fell 20% on the day. If prices remain at current levels by the end of the week, it’ll be the lowest weekly close for shares in over a decade. 📉
As expected, the report brought a lot of Icahn’s enemies out of the woodwork. That includes Bill Ackman, who he feuded with over Herbalife many years ago. ⚔️
There is a karmic quality to this short report that reinforces the notion of a circle of life and death. As such, it is a must read. https://t.co/WtkGPEZHvP
— Bill Ackman (@BillAckman) May 2, 2023
Ultimately, we’ll have to wait to see how Icahn responds and the stock behaves in the coming days/weeks. For now, let the drama continue… 🍿