Billionaire investor Carl Icahn’s company, Icahn Enterprises (IEP), has made significant moves in response to the complaints raised by short-seller Hindenburg Research earlier this year. Icahn cut the company’s quarterly payouts in half and vowed to focus on activism, a strategy that has made him renowned in the investing world. The announcement comes after IEP’s second-quarter loss more than doubled from the previous year, leading to a decline in the company’s shares. Additionally, Icahn addressed the regulatory scrutiny IEP faced and blamed Hindenburg Research’s report for the recent challenges.
Quarterly Payout Reduction and Second-Quarter Loss
Icahn Enterprises announced a reduction in its quarterly payouts, lowering the payment from $2 per depositary unit to $1 per unit. This move follows Hindenburg Research’s criticism, which had claimed that IEP’s dividend was unsustainable. Consequently, IEP shares plummeted as much as 37% on Friday, reflecting investors’ concerns over the company’s financial performance.
In the second quarter, IEP reported a loss that was more than double compared to the same period the previous year. This decline in financial performance further reinforced the impact of Hindenburg Research’s allegations on the company’s prospects.
Regulatory Scrutiny and Hindenburg Research’s Claims
IEP also revealed that it had been contacted by the US Securities and Exchange Commission’s enforcement division in June, followed by earlier communication from the US Attorney’s Office in May. The company confirmed its cooperation with their information requests related to various aspects of corporate governance, capitalization, securities offerings, and more. It’s essential to note that neither the US Attorney’s Office nor the SEC has made any claims or allegations against IEP or Carl Icahn.
Hindenburg Research’s Report and IEP’s Response
Icahn attributed IEP’s recent struggles to Hindenburg Research’s “misleading and self-serving” report. However, he acknowledged the short seller’s prediction about the unsustainability of IEP’s dividend, which proved prescient as the company subsequently reduced its quarterly payouts by 50%. IEP has faced pressure since May when Hindenburg Research leveled accusations against the company, citing concerns over its leverage and trading valuation compared to its net asset value.
Renegotiating Loan Terms and Refocusing on Activism
Following Hindenburg’s attack, Icahn renegotiated some loan terms to mitigate the risk of a margin call. He had pledged more than 100 million shares in IEP as collateral, almost one-third of his stake in the company. The new agreement untied his personal loans from IEP’s share performance, linking them to the firm’s indicative net-asset value instead. The move aimed to diffuse the impact of the Hindenburg report and prioritize Icahn’s activist strategy while reducing the company’s hedge book.
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Conclusion
Carl Icahn’s IEP has taken significant steps to address the concerns raised by Hindenburg Research’s report. The reduction in quarterly payouts and the pledge to refocus on activism underscore Icahn’s determination to steer the company amid financial challenges. The situation has attracted regulatory attention, but IEP remains committed to its activist investment approach, which has yielded success in the past. As the company navigates through the aftermath of Hindenburg’s report, market observers will closely monitor its performance and strategic moves in the coming months.
