Carl Icahn: What It Takes To Be A Truly Successful Activist

Johnny HopkinsCarl IcahnLeave a Comment

In his latest interview with Bloomberg, Carl Icahn discusses a number of topics including what it takes to be a truly successful activist. Here’s an excerpt from the interview:

Q: You have been a shareholder activist for as long as anyone on Wall Street. There seems to be a trend toward a less combative, more cooperative approach between activists and their targets in corporate America. Are the days of the pugilistic investor numbered?

Icahn: I don’t believe activism has changed very much or, for that matter, that there were ever many true activists.

There are many companies that are undervalued because of poor management and/or there are certain hidden assets that the board or management have not taken advantage of. Some examples proving this point that we have been involved with are Reynolds Tobacco separating and taking advantage of the value of Nabisco; EBay spinning off PayPal; and Motorola separating into Motorola Mobility and Motorola Solutions.

It is true that IEP (Icahn Enterprises) and I have made a great deal of profit from these activist campaigns and dozens of others, including Texaco, Apple, Caesars Entertainment, Herbalife, Netflix, and others. More importantly, our actions have enhanced value for all shareholders as well as causing these companies to be more productive.

There is much that is wrong with corporate governance today. There are many good boards and CEOs but sadly there are many that should not be there but are extremely hard to remove. That causes our companies to not realize their full productive potential, which will become a much larger problem as inflation continues to increase.

As activists, it took years of strenuous negotiations to convince managements and the boards to successfully unlock value in most of these companies. It takes a great deal of patience, permanent capital and negotiating skill — as well as a very thick skin — to be truly a successful activist, and perhaps that’s why it is so lucrative and the best investing model that exists today. Perhaps above all, it takes the ability to choose good management teams, if needed, when you do gain control of a company.

Even though results for 2019 and 2020 were disappointing, our losses were partially because we were too hedged; not because of our activist activities during that period. Approximately eight months ago we reduced our short hedges to normal ratio levels. Partially as a result of this, our indicative net asset value increased by $668 million in the first quarter of 2021 and we currently estimate that our indicative net asset value has increased by approximately $350 million in the first month-and-a-half of our second quarter as of May 23.

I believe our long-term record clearly proves our point that activism is by far the best investment model that exists today. An investment in Icahn Enterprises depositary units made at the beginning of 2000, when we began to fully embrace the activist strategies, has increased by approximately 1,931% (assuming reinvestment of dividends.) An investment in the S&P 500 Index over the same period would have increased by only approximately 324% (assuming reinvestment of dividends).

You can read the entire interview here:

Icahn on Inflation, Investing, and What He Misses About NYC: Q&A (Bloomberg)

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