It's been a tough year to make money on Wall Street, unless your name is Carl Icahn. He made his fortune with hostile takeovers in the bull market of the 1980s. And even in falling markets, he knows how to make a buck.
Consider what happened yesterday. One of his investments, Kerr-McGee (NYSE:KMG), surged 6.6% to $78.90. The company said it would "enhance stockholder value" by initiating a $4 billion share repurchase. What's more, the company withdrew its federal lawsuit against Icahn, which alleged violations of antitrust laws along with other charges.
Kerr-McGee is a large energy and inorganic-chemical company. In the fourth quarter, the company posted net income of $133.8 million, up from $50.3 million in the same period of 2003. During this time, revenues increased from $1.03 billion to $1.6 billion.
But in the surging energy sector, Icahn considered such a performance to be lackluster. So in March, he wrote a letter to Kerr-McGee senior management. Indicating that he and the hedge fund JANA Partners owned 11.6 million shares of the company, he called for a proxy fight to place himself and Barry Rosenstein, managing partner of JANA, on the board, to "ensure that KMG is focused on maximizing shareholder value." Icahn also recommended that the company sell its chemical business (which it recently put on the block), engage in complex futures contracts to lock in profits at current high energy prices, and use the excess cash to buy back stock.
Kerr-McGee caved. As a result, Icahn and JANA Partners agreed to cease their proxy fight.
Although Kerr-McGee's stock took a short-term hit as a result, it's not clear on how this helps the company's long-term performance. After all, Icahn wanted the company to stop focusing on exploration projects. In a related matter, Fitch Ratings lowered Kerr-McGee's rating to junk status in response to the company's announcement that it will finance its share repurchase activity with additional debt. Moreover, Kerr-McGee slashed its quarterly dividend from $0.45 to $0.20.
But that's not a concern for Icahn. He got what he wanted, and provided he's on point, shareholders will get what they want -- returns.
Fool contributor Tom Taulli does not own shares mentioned in this article.
