Carl Icahn had himself an awfully busy holiday season. Not only was he able to secure the winning bid for Peb Boys - Manny Moe & Jack (NYSE: PBY), but he was also a major shareholder in two companies that showed their founding CEOs the door: Freeport-McMoRan (NYSE:FCX), and Cheniere Energy (NYSEMKT:LNG).
In this clip, Sean O'Reilly, Tyler Crowe, and Taylor Muckerman explain what Icahn's reported reasoning is, how the shifts are going to disrupt the companies' plans, why the move with Pep Boys is especially confusing, and what's next for these three companies.
Listen to the full podcast by clicking here. A full transcript follows the video.
This podcast was recorded on Jan. 7, 2016.
Sean O'Reilly: Carl Icahn, everybody's favorite billionaire corporate raider, gave himself some Christmas presents.
Tyler Crowe: Hey, he's an activist investor, not a corporate raider.
Taylor Muckerman: Corporate raider is so 1980s.
O'Reilly: Sorry. I loved "Barbarians at the Gate," I'm sorry. I actually read that, it was on my reading list. Anyways, he's basically kicking out founders left and right at these energy companies.
Muckerman: I guess, the people he gets put on boards are kicking the people out. His mercenaries are doing it for him.
O'Reilly: He's doing it by proxy.
Muckerman: Exactly. But, these guys aren't necessarily leaving empty handed. Jim Bob Moffett, $16M payout, with $1.5 per year consultant fees.
O'Reilly: He's from Freeport-McMoRan.
Muckerman: Yes. Co-founded with two other guys McMoRan Oil & Gas. I guess they merged with Freeport Minerals. Then, they remerged a couple years ago. And now, they're not investing in oil or gas anymore for the foreseeable future. The company's been through more flux than pretty much any company I can think of in the energy space.
Crowe: You might want to put Cheniere Energy on there, too.
Muckerman: Yeah, that's true.
Crowe: You go from an oil and gas producer to a natural gas importer to a natural gas exporter in a matter of 15 years ...
Muckerman: Well, basically attempted all three and hasn't done any yet.
Muckerman: I don't think he imported any natural gas.
Crowe: They do. They have a couple contracts that have helped put a little cash on the books to fund the exports. But yeah, it's been a terminal that never met its capacity.
Muckerman: Yeah, they never found anything when they drilled, and they're still yet to export. That being said, I'm a shareholder. So, maybe I'm kind of glad that they'll take the cash and maybe sit on that for a little while, rather than what he was hoping to do, doubling the amount of trains they have by 2025. They have seven coming online now, and he wanted 14 by 2025. A bit ambitious. And obviously, the board felt that way as well.
Crowe: Yeah. At the time, with what Cheniere Energy's existing plans were -- we talk about their savings path and their Corpus Christi terminals -- the amount that they would process with that is equivalent to about 10% of U.S. natural gas production. So, they were looking to move a lot of stuff. And bumping up to 14 would have been a huge, huge move --
Muckerman: In just 10 years.
Crowe: Yeah. That's a big change to the natural gas market that may not necessarily the market would be ready for.
O'Reilly: And last but not least, Pep Boys. Anybody want to buy an auto parts chain or anything?
Muckerman: Long term? Sure, it might do well with all these trucks that are going to come on. They're going to break down on the side of the road someday. But when you have cars like Tesla, probably the way of the future, with no fluids, no engines, what is Pep Boys going to fix and sell? I don't get it. I mean, Teslas aren't breaking down. If they're breaking down, they're burning to the ground.
O'Reilly: Which has happened.
Muckerman: You can't go to Pep Boys to fix that. You're going to go to Tesla and be like, "Give me another damn car." I don't know, that's obviously a very long term thought.
O'Reilly: He talked about the huge opportunity to expand, how he's going to open a couple hundred more Pep Boys everywhere.
Muckerman: I have no idea.
Crowe: Just looking broadly at what I'll call the three big Christmas presents of Carl Ichan, between Pep Boys getting --
Muckerman: "I want my scalps."
Crowe: -- Cheniere Energy's CEO and Freeport's CEO. Going into Freeport and Cheniere, it's like, "Oh, we can cut costs, do all these things to get value out of these stocks." And the same thing, he's like, "Oh, there's immense value in Pep Boys." But looking at these commodity companies, it's hard to see how much more cost cutting can go on than what's going on, unless you're looking at rapid divestitures to basically slice the company down.
Muckerman: Which could happen at Freeport.
Crowe: It could.
Muckerman: With Cheniere, I think it was just, pull back on the throttle. With Freeport, you could definitely see some --
Crowe: And sometimes it's hard to see, necessarily, what exactly the thought process is when it comes to some of these things. I don't want to say that he's wrong in any way, because I don't know. He's made a lot of money, way more than I ever will.
O'Reilly: "Listen, he's really rich."
Crowe: He's really rich. But, at the same time, I look at these moves, and Pep Boy's the same thing.
O'Reilly: It struggles to make money right now.
Crowe: It struggles to make money and, even when you do comps to other service companies, it's not a high margin business in any way whatsoever. The returns on capital aren't even that great compared to somebody like, maybe, Advanced Auto Parts, or an AutoZone, where you're just selling parts. The returns on that are much, much higher. So, I just don't see it, personally.
O'Reilly: "Pep Boys is going to be huuuuge."
Muckerman: Welcome to the show, Trump! Maybe there's something. I mean, there was a bidding war for it. They rebuffed him once, then another company came in and made an offer, and then he matched it. And now it's his.
O'Reilly: He's going to leverage it up, that's how I see it happening. Because he's a corporate raider.