Carl Icahn (Trades, Portfolio)’s Icahn Enterprises LP (IEP, Financial) has agreed to sell its subsidiary Federal-Mogul along with its debt to Tenneco Inc. (TEN, Financial), which will divide into two entities, the companies announced Tuesday.
Tenneco, a $9 billion manufacturer of clean air vehicle products, plans to purchase Federal-Mogul, a powertrain and motorparts manufacturer, for $5.4 billion, consisting of $800 million in cash and 29.5 million shares of Tenneco stock. The deal represents a quick turnaround for activist investor Icahn after taking full ownership of the company in January 2017 for $300 million, or $9.25 per share. He had had a position in the company since 2008 and owned 82% before buying it outright.
“Icahn Enterprises acquired majority control of Federal-Mogul in 2008 when we saw an out-of-favor market opportunity for a great company,” Carl C. Icahn, chairman of Icahn Enterprises, said. “During that time, we have built one of the leading global suppliers of automotive products.”
Tenneco Inc. shares rose 4.09% to $57.82 Tuesday. Icahn Enterprises rose 2.93% to $61.44.
Upon the closing of the deal, which is expected in the second half of 2018, Tenneco plans to split into two businesses. An aftermarket and ride performance company will combine the Tenneco Ride Performance and Federal-Mogul Motorparts businesses. The powertrain technology company will unite the Tenneco Clean Air and Federal-Mogul Powertrain businesses.
Icahn said he expects to be “meaningful stockholders of Tenneco going forward.” Tenneco has five-year growth rates of 7% for revenue, 4.4% for EBITDA, 4.8% for earnings per share and 22.5% for book value. At the end of 2017, it had $315 million in cash $1.36 billion in long-term debt. It had robust operating income of $148 million for the year, which allowed it to cover its $19 million in interest expense on the debt more than comfortably.
Icahn Enterprises owns 100% of five other companies, including PSC Metals Inc., one of the largest independent metal recycling companies in the U.S., and Icahn Automotive Group LLC, a distributor of aftermarket auto parts. His investing arm, Icahn Capital, has a roughly $3.0 billion fair market value.
Icahn’s strategy is to acquire assets he believes are undervalued and improve their operations and financial results, often selling them after turning them around. In his previous deal, Icahn sold American Railcar Leasing for $3.4 billion in 2017, reaping a $1.7 billion pre-tax gain.
Icahn’s investment funds have suffered from steep losses in recent years. In 2016, he lost 20.3%, following an 18% loss in 2015 and 7.4% loss in 2014. He came back in 2017 with a 2.1% gain, his first in four years. Since inception in 2-14, the funds produced an annualized return of 6.2%.
Icahn’s largest holdings are an 82% stake in CVR Energy Inc. (CVI, Financial), 4.76% stake in AIG Group Inc. (AIG, Financial) and 13.75% stake in Cheniere Energy Inc. (LNG, Financial).
See Carl Icahn (Trades, Portfolio)'s portfolio here.
