Icahn Enterprises, led by renowned activist investor Carl Icahn, made a significant move by slashing its dividend by 50% last Friday. This decision comes just a few months after a well-known short-seller targeted the company’s dividend structure, triggering a flurry of share sell-offs.
The aftermath was stark: Icahn Enterprises (IEP.O) witnessed a harrowing 23% drop in its share value by the end of Friday’s trading, marking a staggering decline of over 50% since May 2. The turmoil began when Hindenburg Research, a prominent short-seller, publicly accused the company of orchestrating a dividend payment scheme resembling a “Ponzi-like” setup.
Although Carl Icahn holds a prominent place among activist investors, his response to Hindenburg’s allegations proved challenging. He pushed back, deeming the accusations “misleading.” In a strategic move, he restructured his personal loans, which had demanded collateral if the share price tumbled.
In a communication released on Friday, Carl Icahn conveyed the company’s intent to refocus on its core activist approach. This shift involves reducing unfruitful bets on an imminent stock market decline.
Hindenburg, on the other hand, reiterated its stance against Icahn Enterprises, revealing that it remained short on IEP, as conveyed on the messaging platform X (formerly Twitter). Back in May, Hindenburg had boldly forecasted IEP’s eventual dividend reduction or elimination, unless an improbable investment performance turnaround occurred.
IEP, in its latest move, announced a $1 distribution per depositary unit to its investors for the second quarter, a notable reduction from the customary $2 payout. Additionally, the company divulged its cooperation with a division of the U.S. Securities and Exchange Commission (SEC), responding to their inquiries about the company and select affiliates since June.
The company clarified that neither the U.S. Attorney’s office nor the SEC had made any formal allegations in relation to these inquiries.
Financially, IEP disclosed a widened loss of $269 million, translating to 72 cents per depositary unit, for the quarter. This stood in stark contrast to the $128 million loss, or 41 cents per unit, incurred the previous year.
During Friday’s trading session, shares plummeted to a low of $20.54, reaching their lowest level in over two months. Carl Icahn remained steadfast, staunchly denying Hindenburg’s allegations and vowing to counteract the short-seller’s report.
In an address to investors, Carl Icahn emphasized his firm’s strategic decision to recalibrate focus toward core activism. He noted the significant reduction in hedges over the past half-year, attributing the diminished returns to an excessively bearish market outlook and associated oversized short positions.
Icahn had recently restructured $3.7 billion in personal loans, disassociating collateral obligations from fluctuations in his holding company’s share price.
Following Hindenburg’s report release in May, IEP divulged an ongoing investigation by the U.S. Attorney’s Office for the Southern District of New York. Yet, the link between this regulatory scrutiny and Hindenburg’s allegations remained unclear, as no further updates were provided.
Hindenburg’s central claim asserts IEP’s inflation of asset values and the distribution of an unsustainable dividend, funded through the sale of new shares to cover losses and dividends. The short-seller also highlights alleged non-disclosure of terms for personal loans secured by Icahn with his IEP stake.
IEP stands by its position, vehemently refuting the allegations while expressing unwavering confidence in its financials and reporting. The company defends its dividend policy as grounded in long-term prospects and asserts having substantial liquidity to fulfill obligations.
David Willetts, CEO of IEP, slammed Hindenburg’s report as riddled with inaccuracies and misleading statements, accusing the firm of attempting to manipulate the market for personal gain.
