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Carl Icahn, obsessive activist investor: His decades-long war on corporate complacency has gone mainstream

February 21, 2014 6:44 pm

Carl Icahn, obsessive activist investor

By Stephen Foley

His decades-long war on corporate complacency has gone mainstream, writes Stephen Foley

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Steven Goldstone, when he was chief executive of RJR Nabisco, used to call the appearance of Carl Icahn “a rite of spring”. Year after year, the investor would show up to demand RJR split its snacks and tobacco businesses apart; year after year, he would fight to persuade fellow shareholders to approve his representatives for the board; and year after year his defeat would not deter him from trying again.

The remarkable persistence of Mr Icahn has been on show again this week. Partly because his four-year campaign of pressure on the drugmaker Forest Laboratoriescame to lucrative fruition in a $25bn sale to Actavis.

Mainly, however, because the Forest deal, coming two days after he turned 78, provided another opportunity for Mr Icahn to argue that activist investors are shareholders’ best defence against an entrenched corporate management class that is self-serving and feckless. It is an argument he has been making consistently since the 1980s, when he was one of America’s most notorious corporate raiders and an inspiration for Gordon Gekko, the fictional financier created by film-maker Oliver Stone, whose motto was “greed is good”.

The difference is that today mainstream investors are more attentive to activists’ arguments. “Shareholders should be tickled to death when he shows up,” says T Boone Pickens, another veteran corporate raider and a friend of Mr Icahn. “He’s about as smooth as a stucco bathtub, he doesn’t pull any punches, but he is accurate about the analysis. You can judge a trapper by his pelts, and Carl’s got a lot of pelts.”

Mr Icahn had twice launched proxy fights for board seats at Forest since starting to build his 11.4 per cent stake and declaring that he had found another great company brought low by mismanagement.

It began as a personal battle: he made insinuations of nepotism against Howard Solomon, then chief executive; Mr Solomon denied the claims and accused Mr Icahn of “maximum distortion”. It became more co-operative when Mr Icahn’s representatives had made it on to the board. He said on Tuesday that the takeover, at a 25 per cent premium to the prevailing share price, was “a terrific result” for all shareholders. It is also good for Mr Icahn, who makes a $1.7bn profit on its investment. He made a 31 per cent return in his funds last year, and 2014 is also off to a good start.

Carl Celian Icahn was brought up in a hardscrabble neighbourhood of Queens, New York, the son of a singer and a teacher. A self-confessed “obsessive”, he drove himself hard enough to earn a place at Princeton studying philosophy, and eventually rebelled against his parents’ wish that he become a doctor. He went into stockbroking, striking out on his own as a trader in 1968. He no longer manages money for anyone else but his $20bn fortune gives him more firepower than most activists.

Shareholders are keener than ever to hear what activists have to say. So Mr Icahn has taken to handing out “myth-busting” facts and figures about the value of activist investors’ interventions, particularly his own. Investors who buy into a company when an Icahn representative goes on the board have on average outperformed the S&P 500 by 10 percentage points, he says.

None of which means he attracts fewer charges of being a bully. That was one of the insults that flew in a heated exchange on CNBC last year, when Mr Icahn took rival investor Bill Ackman to task for his bearish view of Herbalife, a nutritional supplements company in which the pair had taken opposing positions, calling him a “crybaby” and worse.

After the Forest deal, Mr Icahn penned yet another defence of activism. “The relentless insistence that shareholder activism is detrimental, notwithstanding the mountain of evidence proving that the opposite is true,” he wrote, in a note that he decided not to publish but passed to the Financial Times, “reminds me of those last few eminent doctors in the 19th century who continued to extol the virtues of bloodletting as a method of curing illnesses, despite the crushing amount of data proving that this treatment was killing patients.”

“I just sit down with a martini and I write,” he said of his caustic open letters to management.

Unlike many in finance, Mr Icahn starts his day late, rarely appearing in the office before 10am. He stays awake into the small hours, reading, doing puzzles and practising chess, while no one else is awake to interrupt him with calls.

Brett, 34, one of two children with his first wife (he later married his personal assistant), plays an increasingly important part in the business, taking the lead on his father’s $4bn Apple investment. But there is no doubt who calls the shots.

The Icahn offices, overlooking New York’s Central Park, are decorated with the relics of battles past, including deal trophies and framed letters of support.

Today’s battles are fought digitally, and Mr Icahn has learnt to wield the power of social media in support of his campaigns. A tweet from @Carl_C_Icahn can light a fire under a share price. Last August, he sent shares in Apple up 5 per cent with 140 characters: “We currently have a large position in APPLE. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come.” That kicked off another running battle, this time to persuade the iPhone maker to return almost all its $160bn cash pile to shareholders. He failed to win support from shareholders, even for a more modest proposal for a $50bn return, but Apple has increased its share buybacks so much that he was able to retreat and declare victory at the same time.

But what is the difference between victory and defeat anyway? At RJR Nabisco, Mr Goldstone split the businesses in his own time and in his own way, but the position remains one of Mr Icahn’s most lucrative. The fact that investor activism has gone mainstream is the biggest victory of all.

 

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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