Icahn Under Pressure

Icahn Enterprises LP (IEP) is trading at a 52-week low today for a variety of reasons including a recent announcement that it is offering to sell $400 mm of additional units. But problems at the company run much deeper than potential dilution of existing unit holders.

Since Hindenburg Research published a damning report in 2023 arguing that IEP was overvaluing its assets on top of losing billions of dollars in the stock market in recent years, the stock has lost more than 70% of its value.

Carl Icahn & affiliates own about 85% of the units so his net worth has shrunk considerably. He has also pledged most of his shares and other assets to borrow billions of dollars (which he didn’t properly disclose for which he was slapped on the wrist by the SEC recently). Fortunately, his margin loans are structured so that he can only be hit with a margin call if the value of IEP’s assets drop significantly; the price of the IEP stock that serves as the collateral for his loans is irrelevant. This highly unusual arrangement raises serious questions in view of Hindenburg’s credible accusations regarding IEP’s valuation practices. A truly independent board of directors would not approve such an arrangement.

Further, IEP has continued to pay a very high dividend in money-losing years that directly benefit Mr. Icahn. He has taken the dividend in-kind (additional units) rather than cash, increasing his ownership and increasing his incentive to keep paying a dividend the company can’t afford. If he were viewing IEP as with the activist eye for which he is famous rather than as the insider he is here, he would be appalled by this dividend policy.

IEP has too much debt, questionable assets, a terrible recent stock market track record, and is facing succession to Mr. Icahn’s son. If Mr. Icahn had a real margin loan rather than one that allows him to value his own assets, he would soon be facing forced sales of his equity.

With such a limited outside shareholder base, the best course is probably to liquidate the company as soon as possible. Without Mr. Icahn soon handing over the keys, and with badly deteriorating fundamentals, there is little reason for the company to continue as a public company.