Investing is a long-term game, and no one knows this more than Carl Icahn (Trades, Portfolio), the 82-year-old corporate raider who has been active on Wall Street since his late teens.
I have always been fascinated by Icahn's career because he has built his reputation not just by investing, but by investing and then shaking up companies. He has generated outstanding returns for himself and the investors of the companies he has been involved in (this statement is not strictly true, only recently has he turned his hand to improving the outcome for all stakeholders rather than running companies into the ground and taking out as much profit as possible).
A long career of making money
Icahn's career might not be the most glamorous investment story around, but his ability to find undervalued companies and unlock value from assets is unrivaled in my opinion. It is also notable how long he has been in the game. A career spanning nearly seven decades puts him in an illustrious club of investors who have managed to survive and retain their fortunes through numerous bear markets, always coming out on top.
2017 was one of the worst years on record for Icahn. In the year when the S&P 500 produced a total return of 22%, Icahn's investment funds added only 2.1%. Icahn blamed this poor performance on what he called "substantial hedging activities."
Icahn's empire is run using an interesting strategy. The majority of his wealth is tied up in Icahn Enterprises (IEP, Financial), a publicly traded investment vehicle. However, the difference is, the company owns a selection of businesses as well as $3 billion invested in a fund managed by Icahn himself, which is essentially a hedge fund. Icahn owns roughly 93% of Icahn Enterprises, where he is chairman.
Two different portfolios
The difference between the two portfolios, that of the publicly traded partnership and the private hedge fund that Icahn manages, shows off the different investment styles these vehicles are using. The hedge fund's holdings appear to be relatively short-term trades. According to Icahn's latest 13F filings, these include stocks like CVR Energy (CVI, Financial), Herbalife (HLF, Financial), Dell Technologies (DVMT, Financial) and Newell Brands (NWL, Financial). Icahn is waging public activist campaigns against all of these businesses, with mixed success.
The public partnership owns what I would call longer-term holdings, which provide a steady stream of cash flow. Holdings like CVR Energy, CVR Refining (CVRR, Financial) and American Railcar Industries (ARII, Financial). There is also billions of dollars in real estate auto parts producer Federal-Mogul and Tropicana Entertainment. All of these holdings have produced outsized returns for Icahn and his investors.
American Railcar, for example, recently agreed to merge with a subsidiary of ITE Rail Fund for $1.75 billion, including debt, a 50% premium to the prevailing market price at the time. According to CNBC, Icahn Enterprises said its investment in American Railcar has resulted in a profit of $757.2 million. Not bad for a holding worth nearly $550 million after the deal was announced.
Federal-Mogul recently closed its $5.4 billion merger with auto parts maker Tenneco (TEN, Financial). Tropicana was also acquired for $1.85 billion by Eldorado Resorts (ERI, Financial).
A record year?
Other publicly held investments have also put in a strong performance this year. Hertz Global Holdings Inc. (HTZ, Financial), an Icahn fund holding, posted its most significant quarterly profit in three years at the beginning of November.
In another fight, Icahn has won a battle with Michael Dell (Trades, Portfolio), who's Dell Technologies is trying to go public via the backdoor by buying software maker VMware (VMW, Financial). At $109 per share, Icahn had previously argued the offer was too low. The new offer of $120 per share is still far from the $300 price suggested by the activist investor, but he has dropped his lawsuits against the business, believing that enough shareholders have decided to support the revised proposal that his proxy fight is "unwinnable."
All of these small victories prove that the seasoned activist investor has not lost his edge just yet. 2018 is shaping up to be one of his most profitable years on record in terms of deals reached.
He may not be everyone's favorite investor, but, in my opinion, Icahn is certainly one of the most interesting characters on Wall Street.
Disclosure: The author owns no stocks mentioned.
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