Bill Ackman and Carl Icahn are back in the limelight. Where have we seen this before? Both legendary investors, Ackman and Icahn duked it out during Ackman's memorable activist short campaign against the dietary supplement and marketing company Herbalife.
Icahn took the long side of the bet, and the feud boiled over during an iconic debate on CNBC back in 2013 that saw the two take personal shots at each other.
Now, 10 years later, another battle between the two could be brewing. Icahn's conglomerate, Icahn Enterprises (IEP 1.53%), has come under attack from short sellers this year, and the stock has lost more than 57% of its value. Recently, Ackman made some comments about Icahn Enterprises on Twitter, which seem to be fanning the flames.
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The short thesis against Icahn Enterprises
In early May, the investment research firm Hindenburg Research, which focuses on activist short-selling, issued a short report on Icahn Enterprises, a conglomerate that invests in a wide range of sectors, including energy, automotive, food packaging, metals, real estate, and home fashion. Icahn owns 85% of the company.
Hindenburg's short report has three main assertions driving its short thesis against Icahn Enterprises:
- The company previously traded at a 218% premium to its net asset value (NAV), a much higher valuation than any of its peers.
- The company's less liquid and private assets have inflated valuations in the company's financial statements.
- IEP recently incurred more losses due to a big short bet in late 2022 that hasn't worked out.
Hindenburg also believes IEP's $2 quarterly dividend is unsustainable. This translated to a roughly 16% annual dividend yield before the short report, and now a 36% dividend yield following the huge sell-off. In its report, Hindenburg pointed out that IEP has generated close to -$5 billion of free cash flow since 2014 while paying out $1.5 billion in dividends during this time.
Another big allegation from the Hindenburg report is that Icahn has pledged roughly 60% of his IEP holdings as collateral for personal margin loans, which, if called, could result in a forced asset sale. Icahn has refuted the short report, referring to Hindenburg Research as "blitzkrieg research."
Ackman chimes in
Although there are different ways to look at it, and Herbalife did have to pay $200 million to the Federal Trade Commission for certain violations, from an investment perspective, Icahn is widely considered to be the winner in the Herbalife battle.
Ackman, the founder of Pershing Square Capital Management, had made a $1 billion short bet against Herbalife while also spending significantly to wage a public campaign against the company. Icahn went long on the stock, which ended up much higher toward the end of the battle, although it has struggled a lot more recently.
While Ackman and Icahn have supposedly been on better terms since their public argument on CNBC, that didn't stop Ackman from chiming in on the short thesis against Icahn Enterprises, calling the situation between Hindenburg and Icahn "fascinating."
"The yield is generated by returning capital to outside shareholders, which is in turn funded by the company selling stock to investors," Ackman tweeted, adding that the model depends on "maintenance of the premium and the placidity of Icahn's margin lender(s)."
Ackman, who said he is not short or long the stock, also added that IEP's past performance does not justify the huge premium valuation, but rather one that is discounted to the company's NAV.
Is Ackman looking to rejuvenate the war?
It's hard to ever really know what's going on behind the scenes of the heavy hitters, who are likely using tactics to try and move markets in ways that are difficult for most of us to fully comprehend.
While Ackman may not be long or short on IEP, his comments certainly do not seem friendly. At the end of his long tweet about the Hindenburg report and IEP, Ackman said: "Icahn's favorite Wall Street saying: 'If you want a friend, get a dog.' Over his storied career, Icahn has made many enemies. I don't know that he has any real friends. He could use one here."
While they may have patched things up publicly, Ackman and Icahn's feuds date back some 20 years since a bad deal in 2003. Given that Icahn seems poised to fight the shorts, it will be interesting to see how the situation develops and whether Ackman will dip a toe in or seize on an opportunity, with Icahn up against the ropes.
