Activist investor and “corporate raider” Carl Icahn's Icahn Enterprises LP conglomerate is the latest high-profile target of renowned short-selling firm Hindenburg Research.
In a detailed report published on Tuesday laying the thesis for a short sell on the Florida-based investment company, Hindenburg contended that Icahn’s share price is 75% overinflated.
The short seller’s thesis is supported by a 218% premium to net asset value (NAV), “clear evidence” of inflated valuation marks for the group’s less liquid and private assets, and additional performance losses in 2023 following its latest earnings disclosure.
“Most closed-end holding companies trade around or at a discount to their NAVs,” said Hindenburg, pointing to vehicles run by other star managers including Dan Loeb’s Third Point and Bill Ackman’s Pershing Square.
Hindenburg believes that Icahn’s year-end NAV of US$5.6bn is inflated by “at least” 22%.
Investors may be putting a premium on Icahn shares due to its exceptionally large dividend yield of around 15.8%.
However, Hindenburg believes this dividend “is entirely unsupported” by Icahn’s cash flow and investment performance, “which has been negative for years”.
Hindenburg believes Icahn is supporting its dividend using regular open-market share sales through at-the-market (ATM) offerings, totalling US$1.7 billion since 2019.
Chair and 85% controlling shareholder Carl Icahn called it a “self-serving short selling report… intending solely to generate profits on Hindenburg's short position at the expense of IEP's long-term unitholders”.
“We stand by our public disclosures and we believe that IEP's performance will speak for itself over the long term as it always has,” said Icahn.
Icahn’s share price plummeted 20% following release of the report.
Carl Icahn, who was once a frontrunner for former president Donald Trump’s cabinet, saw his net worth plunge over US$10mln in one day following release of the report.
He remains among the top 100 richest people in the world, according to Forbes.
Jefferies under fire
US investment bank Jefferies also came under fire for its continuous buy rating and underwriting of Icahn’s ATM offerings.
The report stated: “In one of the worst cases of sell-side research malpractice we’ve seen, Jefferies’ research assumes in all cases, even in its bear case, that IEP’s dividend will be safe ‘into perpetuity’, despite providing no support for that assumption.”
Proactive has reached out to Jefferies and Icahn for a comment.