What happened
Famed investor Carl Icahn has taken steps to eliminate a key criticism that a short-seller hurled at his Icahn Enterprises (IEP -0.12%). Investors are celebrating the move, sending shares up as much as 15% on Monday morning.
So what
Through most of his half-century career, Icahn has been the one putting pressure on public companies. But in early May, short-seller Hindenburg Research put him on the defensive. The firm called Icahn Enterprises "substantially overvalued," saying the company overstated the value of its portfolio and relies on a "Ponzi-like" structure to fund operations.
Hindenburg was also critical of Icahn's habit of pledging his company's shares as collateral for his personal margin loans. Icahn owns 85% of the company, and about 60% of his shares were pledged as collateral for personal loans.
Icahn was largely dismissive of the claims, but he is apparently acting in response. He and his banks have finalized amended loan agreements that would separate his personal loans from the trading price of the company's shares, increase his collateral, and set up a plan to fully repay the loans in three years.
Now what
Monday's jump is notable, but Icahn Enterprises still trades at a 35% discount to where it was just three months ago, before the Hindenburg report was published. There are no guarantees the stock will return to those highs anytime soon.
The company is an odd assortment of assets doing business in eight segments, including automotive, energy, pharmaceuticals, and home fashion. The common thread is their ability to generate cash that Icahn can then put back to work via new investments.
Icahn has not slowed down since the Hindenburg report, pushing ahead with a successful proxy contest against the biotech Illumina. Investors likely need to see more signs that Icahn's momentum was not halted by Hindenburg before they rush back into the stock.
