Saturday, May 29, 2010 0 comments ++[ CLICK TO COMMENT ]++

An investment opportunity that may interest some - Icahn Enterprises (IEP)

I ran across an article in Barron's—it should be free—detailing a bullish case for Icahn Enterprises (IEP). I don't usually share the opinion of mainstream publications but this is an interesting opportunity. I don't invest in companies like these but I think some of you may find it worth researching.

Here is a snippet from Barron's (bolds are by me):

ICAHN ENTERPRISES, A diversified investment company run by Carl Icahn, offers the little guy a good way to play alongside the Wall Street billionaire.

Structured as a limited partnership, the company has a $2 billion stake in Icahn's hedge fund, Icahn Partners; $1 billion of real-estate holdings, including two office towers in Atlanta and Dallas; $840 million of cash, and $1.6 billion of investments in other public companies, including a 75% interest in auto-parts maker Federal Mogul (ticker: FDML).

Shares of Icahn Enterprises (IEP) trade for 33, far below a 2007 peak of 134. They also sell at a discount to the company's asset value, which we estimate at $44 a share.


Icahn Enterprises has a market value of $2.7 billion and debt of $2.6 billion. It yields 3%. Shares are thinly traded, at an average of 20,000 a day; Icahn owns 92% of the 84 million shares outstanding.

IEP looks like a better bet for investors than the hedge fund, which charges a base fee of more than 2% of assets, and incentive fees of about 25% of profits. Icahn Enterprises pays no fees on its Icahn Partners holdings.


Icahn's track record isn't perfect. He has tripped up on some investments, including Motorola and Yahoo!, two businesses it appears he didn't fully understand.


ICAHN ENTERPRISES' RELATIONSHIP with the rest of Icahn's empire is complex. Icahn sometimes sells assets to Icahn Enterprises from his private holdings. Some of these deals have done well, but the investor's sale of the management company of the hedge fund to Icahn Enterprises in 2007, for $810 million in stock, hasn't panned out.

Carl Icahn, as many of you may know, is one of the most successful "corporate raiders" in the last quarter century. Some people, including senior management of many companies, hate his tactics but, as a capitalist, he does improve the efficiency of firms. He has a great track record but, as the article points out, he has made some mistakes in the recent past—including the controversial investment in Motorola (MOT). Anyone contemplating an investment like this should consider the risk of what happens if Icahan, who is kind of old, retires or passes away.

I'm not too sold on this investment but it is the type of investment that likely provides an advantage to small investors. As the article mentions, more than 92% of the shares of IEP are owned by Icahn so the float is tiny. Large investors likely can't invest in IEP; they will invest in Icahn's hedge fund instead. If you like Icahn and his recent investments, IEP looks attractive. IEP shares are trading 25% below net asset value (as computed by Barron's.) But as has been common during the credit bust, a lot of assets can get marked down so anyone contemplating investing in this needs to figure out if the asset values make sense.

Here is a table summarizing Icahn Enterprises, courtesy Barron's:


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