Anyone on here outright disagree with the thesis they outlined in the memo? They also really went after Jefferies in the note as well. Finding it hard to go against the Ponzi scheme nature of the dividend new share issuance/ATM take.
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I think a few of the minor arguments were a little thin, but it is probably fair to ask why does IEP deserve to trade at such a big premium to NAV when other CEFs trade at lower premiums or even discounts? Theoretically, there could be embedded value in private assets (Hindenburg made the opposite argument) or a call option on Icahn’s investing acumen (maybe you could use Berkshire/Buffet premium to book as a comp), but the argument that made the most sense is that investors were just addicted to the high distribution yield. If you believe that is unsustainable, it seems there is a chance some of the investor base could sell if the distribution was cut, which might narrow the premium to NAV. The margin loans are an interesting wrinkle, but I didn’t see enough disclosure on terms to develop a view on materiality. I will note the bond market reacted less sharply than the equity market today.
Hindenburg tends to be right and there’s some irony in Icahn whining about activism 🤪
The report was very interesting. It made two major contentions, which are somewhat discussed above.
1. Icahn Ent. is a holding company which should trade roughly at NAV, but does not because of various shady financial disclosures and propping up by Jefferies, as well AS…
2. Icahn Ent. is a de facto Ponzi scheme because its 15% dividend yield, which props up the stock’s value, is only sustained by getting new investor’s money, which is facilitated by Jefferies’ perma-bull ER coverage and ECM raises.
I thought the thesis seemed largely correct. A few of the arguments on NAV were a bit opaque, and I doubt they can estimate what Icahn’s exposure to gas prices nearly as accurately as they were pretending to.
The report is not the end-all, be-all, but Icahn’s margin loans are a bit of an X-factor. Any forced liquidation on Icahn is probably going to bring down the house. I think Jefferies will prop him up before that would happen though.
Any publicly traded security that derives it's value from self-reported, non market based NAV scares the absolute shit out of me. That said, some of their logic seemed purposely obtuse / disingenuous.
For example, saying it'll take Icahn 2,000 years to sell his stake in the thinly traded public stock he owns. In all reality if he exits that business he's going to sell the entire company in a take-private or something, hopefully at a premium to publicly traded share price. So is the premium assumed pretty sus and likely overvalued? I think so, but to insinuate that Icahn's method of monetizing that asset is to sell like $134 of stock a day in the open market for 2,000 years straight is disingenuous. .
Along the same lines, PE fund marks should also scare the shit out of people as those assets are grossly overinflated - those assets are NOT going to trade at the multiples they bought them for. PE's only hope (esp. in stupid high multiple deals) is that they can hold on long enough to their PortCo's to outwait the Fed and interest rates go back to near zero (without a significant recession) --- good luck!
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