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Icahn Enterprises LP stock tumbled 16% late-Tuesday morning, after short seller Hindenburg Research issued a negative report against the investment arm of activist investor Carl Icahn.
Icahn Enterprises
IEP,
was unable to offer an immediate comment on the short seller’s claims.
In the report called, “Icahn Enterprises: The corporate raider throwing stones from his glass house,” Nate Anderson-backed Hindenburg said IEP trades at a 218% premium over its last reported net asset value, or NAV, which it said is far higher than comparable funds.
IEP, which is 85% owned by Icahn and his son Brett, has a roughly $18 billion market capitalization and offers exposure to Icahn’s personal portfolio of public and private companies, including petroleum refineries, car-parts makers, food packaging companies and real estate.
Hindenburg alleges that IEP’s value is overstated, according to its own calculations which are based on regulatory filings. MarketWatch could not independently verify Hindenburg’s claims.
“Overall, we think Icahn, a legend of Wall Street, has made a classic mistake of taking on too much leverage in the face of sustained losses: a combination that rarely ends well,” reads the report.
Most closed-end holding companies trade around or at a discount to their NAVs, Anderson’s research company writes, likely due to the investments being closed-end — meaning investors cannot redeem them — and due to higher fees paid to sponsors compared with other types of funds.
Hindenburg compares IEP to Dan Loeb’s Third Point, which operates a similar publicly traded investment vehicle, and trades at a 14% discount to its NAV. Bill Ackman’s Pershing Square trades at a 35% discount, Hindenburg said.
But IEP’s NAV premium sets it apart from peers, the report notes.
“As a further check, we compared IEP’s premium to NAV against all 526 U.S. based closed end funds (CEFs) and their respective premiums to NAV in Bloomberg’s database,” said the report. We found that IEP’s premium to NAV is the highest among every fund on the list and more than twice as high as the next closest fund.”
One key draw of IEP, aside from the perceived attraction of investing with a Wall Street legend, is the company’s $2 quarterly cash dividend, which is equal to an annualized dividend yield of 15.8%, the highest of any large cap company, said the report. It cited a FactSet screening that showed the next closest is just 9.9%.
That dividend, which has been paid for 71 straight quarters, is a key draw for the company’s individual investors. However, the short seller said it believes case that the dividend may not be supported by the fund’s cash flows because the dividend is “entirely unsupported” by IEP’s cash flow and investment performance, which has been negative for years, according to the report.
At the same time, IEP has raised its dividend three times since 2014, including in 2019 when it bumped it up to $2 from $1.75.
IEP stock was down 17% in the year to date, while the S&P 500
SPX,
has gained 8.6%.
Hindenburg Research typically aims to profit from the decline in the value of the shares of the companies that it writes negative reports on. The short seller notably targeted zero-emission truck company Nikola about three years ago.
Icahn is a prominent investor, with a net worth of roughly $15 billion, according to Forbes, known for taking stakes in companies and agitating for change to drive the company’s stock higher.
