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Posts Tagged ‘Carl Icahn’

Forbes has a great article on Carl Icahn’s activist campaign at Oshkosh Corporation(NYSE:OSK) called Is Icahn Trying To Nickel And Dime Oshkosh? Sum Of The Parts Worth Way More, BofA Says. Icahn, who, according to the article, holds 9.5 percent of the outstanding stock, is pushing to takeover the company and possible split it up. Icahn has offered $32.50 per share for the stock he doesn’t own. Bank of America’s analysts argue that the value of OSK is between $35 and $38 per share:

Their view, they noted, is supported by the average price target analysts have on the stock, which is approximately $32. Data from Thomson One shows that out of the 14 analysts that cover Oshkosh, 8 have a “buy” or “strong buy” for the stock, with a mean price target of $32.91 and a median of $34.

That valuation excludes a change of control premium, which Bank of America estimates should be between 20% and 30% over their estimate. That would take their sum of the parts valuation to between $42 to $49 per share. “While we believe that it would be very hard to get a bidder without significant synergies at levels greater than $42/share, the current offer of $32.50 while representing a 21% premium to closing price on October 11, 2012 [sic] seems indeed too low,” they added.

Read the article.

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Update: Icahn drops the hammer

From the press release:

ICAHN ENTERPRISES LP

FOR IMMEDIATE RELEASE

ICAHN ENTERPRISES HOLDINGS LP TO MAKE TENDER OFFER FOR ALL OF THE OUTSTANDING SHARES OF COMMERCIAL METALS COMPANY AT $15 PER SHARE

CONTACT: SUSAN GORDON (212) 702-4309

NEW YORK, NEW YORK, DECEMBER 6, 2011 – Carl C. Icahn today announced that Icahn Enterprises Holdings LP (a subsidiary of Icahn Enterprises LP (NYSE: IEP)), intends to initiate a tender offer for all of the outstanding shares of common stock of Commercial Metals Company (the “Company”) at $15 per share.

Closing of the tender offer will not be subject to any due diligence or financing conditions, but will be subject to the redemption by the Company’s Board of Directors of the recently adopted “poison pill” and waiver by the Board of Directors of Section 203 of the Delaware General Corporation Law, as well as other customary conditions. The tender offer will be subject to there being validly tendered and not withdrawn at least 40.1% of the issued and outstanding shares of the Company. That number of shares, when added to the shares already owned by the offeror and its affiliates, represents a majority of the issued and outstanding shares of the Company on a fully diluted basis. The tender offer will include withdrawal rights so that a tendering shareholder can freely withdraw any shares prior to the acceptance of such shares for payment under the tender offer.

Mr. Icahn stated that: “It is disappointing that this Board and management team rejected our all cash offer to buy Commercial Metals at $15 per share. I believe it was incumbent on the Board, and that the Board’s fiduciary duties required it, to allow shareholders to decide whether they wished to sell their Company.

Our tender offer will be directed to shareholders and will require shareholder action. After attempting to work with the Board, we are launching this tender offer so that shareholders can decide for themselves what they wish to do with their company.

We urge you to tender your shares. We have tried and failed to reason with the Board and management, and now it is incumbent upon you to voice your view and urge the Board to respond to shareholder demands. A strong tender offer response will send an unmistakable message to the Board that they need to redeem the poison pill and waive Section 203 so that the tender offer can close and shareholders can be paid immediately. All tendered shares will have withdrawal rights so that a tendering shareholder can freely withdraw any shares previously tendered prior to the acceptance of such shares for payment under the tender offer.

The tender offer price represents a premium of 31% over the stock’s closing price on November 25, 2011 (the trading day immediately prior to our previously announced offer to acquire the Company), which was $11.45, and a premium of 72.6% from its low this year on October 3, 2011, which was $8.60. If a majority of shareholders accept our tender offer (including shares already owned by the offeror and its affiliates), we do not believe that even this Board will stand in the way of allowing a majority of its shareholders from accepting this premium if they wish to do so. However, if the Board, even after hearing from a majority of shareholders, fails to lift the poison pill and waive Section 203, we will leave the tender offer open and seek a court order compelling the Board to redeem the poison pill and waive Section 203 so that the shareholders can receive their money.

We hope that even this Board will not decide to waste time and money fighting the will of shareholders in a courtroom battle. But, if they choose to do so, please know that we will fight this case all the way to the Delaware Supreme Court, and it is our belief, that we will prevail on the merits and that the court would order the Board to redeem the pill and waive Section 203 so that the shareholders can be paid. Obviously, the greater the amount tendered, the stronger our case will be.

Commercial Metals has consistently been at odds with good corporate governance standards. Examples of the lack of good corporate governance that are blatantly hostile to shareholders abound and include: (i) the retention of a staggered board, (ii) the adoption of a poison pill without shareholder approval and at the extremely low trigger of 10%, and (iii) the refusal by the Board to allow shareholders to vote on whether our offer was sufficient.

In addition, the 2011 ISS Proxy Advisory Services Report for Commercial Metals highlights numerous other areas of “High Concern”. ISS also noted that Commercial Metals sustained poor total shareholder return performance as determined by ISS’ standards. As a result of the Company’s poor performance, it is extremely important to send a clear message to the Board and management by tendering your shares.

Carl Icahn submitted a bid  for Commercial Metals Company (NYSE:CMC) last week that prompted an odd response from the company. Icahn sent a follow-up letter that was vintage Icahn. It seems management continued to ignore him, so late last week he sent a further letter to the company demanding action by yesterday at 9am. Icahn’s letter:

CARL C. ICAHN

December 2, 2011

Board of Directors
Commercial Metals Company
6565 North MacArthur Boulevard, Suite 800
Irving, Texas 75039

Ladies and Gentlemen:

On Monday, we informed you and publicly announced that Icahn Enterprises LP would purchase Commercial Metals Company at $15 per share, in cash, without any financing or due diligence conditions. Disappointingly, it is Friday afternoon, the week is over, and we have still not heard from you.

We are sure that you are keenly aware that since our announcement, over 22 million of the Company’s shares have traded. This represents over 19% of the Company’s outstanding shares, and is 200% higher than the average weekly trading volume over the past 52 weeks. To allow your shareholders to trade such heavy volumes without responding to our offer is completely irresponsible – but wholly consistent with the pattern of irresponsibility demonstrated by the Company over the years.

Icahn Enterprises (which currently has, on a consolidated basis, $22.4 billion of assets, including in excess of $13 billion in liquid assets, which are cash and marketable securities) made a legitimate offer to acquire your Company, and to be clear, we continue to be immediately ready to meet with you to document the transaction. We are not asking for any due diligence or financing conditions. All that we are asking is that you allow your shareholders to decide if they wish to sell their company.

We have received a number of inquiries from shareholders this week, as we are sure you have too. Shareholders deserve an answer; it is incumbent on this Board to respond to our offer. To that end, if you continue to disregard your duties and have not contacted us by 9:00 a.m., New York City time, on Monday, December 5, 2011, to schedule a meeting to discuss our offer, please be forewarned that we intend to take matters into our own hands.

Carl C. Icahn

No position.

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Carl Icahn has plowed $1 billion into energy stocks over the last 6 months according to his latest SEC filing. Says The NYTimes Dealbook column:

Yet speculation is rife given the activist investor’s history with energy companies and his reputation for focusing on companies that he believes are undervalued and ripe for a shake-up in some way — with a restructuring or a sale among the possibilities.

One company that may have attracted his interest is one he already knows:  Anadarko Petroleum. Shares of Anadarko, a Texas-based Independent oil company, tumbled in the spring after the explosion and spill at a BP-operated well in the Gulf of Mexico. Anadarko owns a 25 percent stake in the well.

Anadarko’s stock price fell below $35, wiping $19 billion off its market capitalization. (The stock has since recovered, closing at $56.35 on Monday.)

Mr. Icahn goes back several years with Anadarko.  In 2005, Mr. Icahn and a fellow activist investor, Jana Partners, accumulated a 7 percent stake in Kerr-McGee, an Oklahoma-based energy exploration and production company. The Icahn group demanded the company sell off certain units and commence a big stock buyback.  Kerr-McGee did, and then sold itself to Anadarko for $16.4 billion, representing a rich premium of 40 percent.

Mr. Icahn built his stake in the combined company, and by the beginning of 2008 he had 14.8 million Anadarko shares worth around $971 million.

“Investors who bought Kerr McGee stock on the same date I invested and profited from the acquisition by Anadarko realized an approximate 234 percent return,” Mr. Icahn wrote on his blog, the Icahn Report, in 2008.

He rode Anadarko up to its high price of around $80 a share in May of 2008 as oil prices  headed to $147 a barrel.  But Mr. Icahn appeared to be focusing more of his attention and money on his campaign against Yahoo. Oil prices slid to under $35 a barrel as the financial crisis took hold.  Mr. Icahn began selling off his stake and was completely out of Anadarko by May 2009.

Read the article.

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In September last year I picked up a small position in Cadus Corporation (OTC:KDUS). The idea was as follows:

Cadus Corporation (OTC:KDUS) is an interesting play, but not without hairs on it. First, the good news: It’s trading at a discount to net cash with Carl Icahn disclosing an activist holding in 2002, and Moab Capital Partners disclosing an activist holding more recently. At its $1.51 close yesterday, the company has a market capitalization of $19.9M. The valuation is straight-forward. We estimate the net cash value to be around $20.6M or $1.57 per share and the liquidation value to be around $23.2M or $1.77 per share. The liquidation value excludes the potential value of federal and New York State and City net operating loss carry-forwards. It’s not a huge upside but it’s reasonably certain, and we think that’s a good thing in this market. The problem with the position is the catalyst. It’s a relatively tiny position for Icahn, so he’s got no real incentive to do anything with it. He’s been in the position since 2002, so he’s clearly in no hurry. That said, he’s not ignoring the position. He last updated his 13D filing in March this year, disclosing an increased 40% stake. He’s also got Moab Capital Partners to contend with. Moab holds 9.8% of the stock and says that it “has had good interaction with the CEO of Cadus, David Blitz, and feels comfortable that he will structure a transaction with an operating business that will generate significant long-term value for Cadus holders.” KDUS could end up being a classic value trap, but we think it’s worth a look at a discount to net cash, and two interested shareholders.

Fast forward to Friday’s close, and the stock is at $1.44. I got out a little while ago as I was liquidating holdings outside of my fund, breaking even on the position. In For Investors, Shaking Up Is Hard to Do (subscription required) Jason Zweig of the WSJ’s The Intelligent Investor column has some background on the goings on in KDUS:

Just ask Matthew Crouse of Salt Lake City. Starting in 2002, he sank roughly $190,000 into Cadus Corp., a classic “value” stock. The tiny company was selling for less than the amount of its cash minus debt.

In February 2009, Mr. Crouse wrote to Cadus, requesting that the board sell the company and return the cash proceeds to investors. He drafted a resolution to that effect, which he asked the board to include in Cadus’ proxy statement when shareholders were next asked to vote.

Yet Cadus didn’t hold an annual meeting last year. One large shareholder says that “time and again, we have brought opportunities [for mergers or acquisitions] to the attention of the board.” Each time, he says, the suggestion was rebuffed or ignored. “It’s been a decade of complete nonaction,” he says.

A little over a week ago—17 months after Mr. Crouse’s letter—Cadus informed him that it will hold its annual meeting on Oct. 6, that his resolution will be included and that the board will recommend that shareholders reject it.

“My goal is to get it on Icahn’s radar screen so that he’ll need to deal with us, not just ignore us,” Mr. Crouse says. “If you push for shareholder activism in other companies, I’d think you’d want to take care of your own.”

It isn’t that simple, Mr. Icahn counters. “We’ve been looking assiduously for three years for opportunities,” he told me this week. “But I don’t want to make a bad acquisition and lose the cash.” He added, “I strongly believe that in today’s type of market we will find a company [to buy] fairly soon.”

Furthermore, Mr. Icahn says, if Cadus distributed its cash to shareholders, it would have no money for an acquisition, losing the opportunity to use its tax benefits directly. “I don’t want to waste $25 million,” he says. Of course, Cadus could still be acquired by another firm that could make use of the tax break.

Cadus is less a company than a publicly traded checking account with a tax perk attached. The insiders are the only ones who can write checks. The minority shareholders can always vote with their feet by selling the stock—although they would have little to show for it.

For the proposal to pass, nearly 90% of all the minority shareholders would have to vote for it, since Mr. Icahn controls 40% of the stock.

I still think KDUS is good value, but the stock doesn’t trade, so good luck getting any. I don’t see Icahn just wasting the tax shelter, some of which starts rolling off in the next few years, but it’s all academic to me.

[Full Disclosure:  No position. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Whitney Tilson of T2 Partners has been making the rounds in the media talking up his position in BP Plc (LSE:BP). Here’s Tilson on Fast Money late last week:

Market Folly has a great summary of Tilson’s rationale here. In short, it’s a case of being greedy while others are fearful. Tilson compares BP to the Texaco v Pennzoil litigation in the 80s. Tilson makes the point that shareholders in Texaco “weren’t harmed” when Texaco filed for bankruptcy protection following Joe Jamail’s $12 billion judgement against the company. Here’s Icahn describing the negotiations to settle the litigation:

Icahn made out like a bandit on his holding in Texaco. One wrinkle to this comparison is that BP is a British stock, and so it’s not subject to the same bankruptcy regime as Texaco. The Texaco matter also wasn’t as politically sensitive as the BP spill.

The Wall Street Journal has an interesting analysis discussing various scenarios for BP (subscription required).

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The New York Times has a fantastic profile on Carl Icahn called Does Icahn Still Make Them Tremble?

He is one of Wall Street’s most colorful, controversial and complicated characters.

Wearing slightly rumpled khakis and waving his eyeglasses to punctuate key points, Mr. Icahn is constantly jumping from one topic to another in an endless stream of dialogue. In that respect, he more closely resembles an absent-minded professor than a master of the universe.

Corporate executives visiting his offices walk through hallways adorned with paintings of battle scenes and sculptures of cowboys on bucking broncos. One large painting in the conference room features a lion gazing at the bones of an animal in a desert.

Yet he bristles at being labeled a “raider,” despite the fact that he is widely viewed as a founding member of the clan that roamed Wall Street in the 1980s, occasionally pursuing hostile takeovers with ruthless abandon.

He prefers to paint his role in those years with the same “activist investor” brush he holds today, arguing that he has created tens of billions of dollars of value for shareholders in companies in which he invested. (In conversations, he declares that he has created $30 billion, $40 billion and even $50 billion worth of value for shareholders. What is a few billion among friends?)

This is Icahn’s thesis for his investments in the biotechnology sector:

“The biotechs have been his big winners recently,” particularly investments in ImClone Systems and MedImmune, said Mr. Young at Institutional Shareholder Services. “His thesis, which is no secret, is that biotech firms should be purchased by Big Pharma, which is always in need of new products. In his mind, that’s a match made in heaven.”

I love this story:

Mr. Icahn does not seem to let anything, including a very close friendship, get in the way of protecting his and his investors’ profits. Late in 2008, through his hedge fund, he sued Realogy, a real estate company controlled by Leon Black, the head of the private equity firm Apollo Management. Mr. Black was trying to reduce Realogy’s hefty debt load by offering to exchange some of the debt with bondholders.

Mr. Icahn, a bondholder who has known and been friends with Mr. Black for decades — the two have been longtime tennis partners — objected to some terms of the exchange and sued.

“Carl and I have been good friends for over 25 years,” Mr. Black said in an e-mail message. “Occasionally we skirmish as couples are wont to do, but I believe we both feel that when the chips are down that the friendship is paramount.”

How, exactly, does one sue and still be good friends with someone on Wall Street? Mr. Icahn smiles sagely over his cup of coffee: “The two of us have a saying that we always use whenever there is friction in our business dealings. We always say, ‘there’s only one Maltese Falcon.’ ”

At one point in that classic 1941 film, a character chasing a valuable figurine says to a close associate, “You’ve been like a son to me,” Mr. Icahn explains, paraphrasing from the movie.

Then, lowering his voice with mock intensity, Mr. Icahn adds that the character says that if you lose a son, it’s possible to get another — “but there’s only one Maltese Falcon.’ ”

Click here to see the rest of the article.

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Greenbackd is dedicated to unearthing undervalued asset situations where a catalyst exists likely to remove the discount or unlock the value. My favorite stocks are those trading at a substantial discount to net current assets or liquidation value, with an activist pushing for a catalyst to unlock the value. Those opportunities, however, are few and far between. I can frequently find deeply undervalued asset situations with no obvious catalyst. I can often also find activists in stocks that are not undervalued on a Graham asset basis.

A little over a year ago in a post titled Net Net vs Activist Legend I started a thought experiment pitting Dataram Corporation (NASDAQ:DRAM), a little Graham net net, against activist investing legend Carl Icahn and his position in Yahoo! Inc. (NASDAQ: YHOO) (click on the links to laugh at how rudimentary Greenbackd looked then). The idea was simple: Compare the performance of two stocks, one a net net / net cash stock lacking a catalyst, and the other a stock not obviously undervalued on an asset basis, but nonetheless pursued by an activist investor, Carl Icahn.

In the blue corner, YHOO, the super heavyweight

Here’s what I had to say about YHOO at the time:

YHOO is a stock that is not cheap on an asset basis but it does have a prominent activist investor with a 5.5% stake and two seats on the board. At its Friday close of $11.66, which is around two-thirds lower than Microsoft’s May 2008 $33 bid, YHOO still trades at a 70% premium to our $6.82 per share estimate of its asset value. Activist investor Carl Icahn’s presence on the register, however, indicates that he believes YHOO is worth more. Icahn has paid an average of $23.59 per share to accumulate his 5.5 percent stake. At $11.66, YHOO must more than double before Icahn will see a profit. He’s unlikely to sit idly by to see if that happens.

YHOO is not cheap on any theory of value we care to employ. It is trading at a substantial premium to its asset backing, which means the market is still generously valuing its future earnings. It is generating substantial operating cash flow and earnings, which in a better market might be worth more, but it’s not obviously cheap to us.

The best thing about YHOO from our perspective is the presence of Carl Icahn on the register. His holdings were purchased at much higher prices than are presently available and he is unlikely to sit idly by while the stock stagnates.

Buying YHOO at these prices is a bet that Icahn can engineer a deal for the company. Given his legendary status as an activist investor earned through canny acquisitions over many years, we think that’s a good bet. But a bet is what it is – it’s speculation and not investment. If speculation is your game, then we wish you the best of luck but know that the price might fall a long way if he sells out. If you’re an investor, the price is too high.

YHOO closed Friday at $11.66 and the S&P 500 Index closed at 876.07.

And in the red corner, DRAM, a light flyweight

Here’s my take on DRAM’s chances:

DRAM, at 58% of its liquidating value and 76% of its cash backing, is very cheap. We believe that it is worth watching but, with no obvious catalysts and a high cash burn rate, probably one to avoid unless you are willing to bet that its remaining cash might attract an activist or the business will turn around before it runs out of money.

The risk with DRAM, as it is with any net net or net cash stock, is that the company might not make a profit any time soon and won’t liquidate before it dissipates its remaining cash. As we said above, we’ve got no insight into DRAM’s business and don’t know whether it can trade out of its present difficulties and back to at least a positive operating cash flow. According to the 10Q, the company is authorized to repurchase 172,196 shares under a stock repurchase plan but this is an immaterial amount in the context of the 8.9M shares on issue and the plan has been in existence since 2002. The best hope for the stockholders is that the company re-institutes its dividend, which, given its $16M in cash, it certainly seems able to do. No noted activists have disclosed a holding in the company, which means management have no incentive to do anything so stockholder friendly.

Let’s get ready to rumbllllllllllllllllllllllllle…..

Here’s the call of the fight:

The first 10 rounds were to YHOO, but DRAM landed a crushing blow at the end of the 10th. From there, DRAM pounded away while YHOO got the staggers. At the final bell, YHOO managed a respectable 34.2%, but it wasn’t in DRAM’s league, up an incredible 192.8%.

Post mortem

There’s nothing statistically significant about this little experiment, but, regardless, I think it’s interesting. As I’ve discussed in previous posts, small investors have a huge advantage over larger, professional investors. There is nothing easier to analyse than a Graham net net or liquidation play (here’s my post on Graham’s liquidation value methodology), and, as Professor Henry Oppenheimer demonstrated, the returns to a very simple buy-and-hold-for-a-year-and-repeat strategy will put investment professionals to shame. Graham’s methodology is robust and has withstood the test of time. With a little patience, investing like Graham did provides a tailwind that forgives many investing sins. Here’s to the little guys.

Gonna fly now

Go. Go. Go. Go. Go. Goooooooooo…..

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