Carl Icahn Is Locked in Battle Against His Own Kind

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Carl Icahn
features in the latest activist-vs-activist battle, but this one is a little different from previous showdowns.

Earlier this month,

Icahn Enterprises

(ticker: IEP) became the target of short seller Hindenburg Research. The firm, which became well-known for its takedown of

Nikola

(NKLA) in 2020, claimed that Icahn Enterprises overvalues its stakes in private businesses, and wrongly trades at a premium to its net asset value (NAV) while similarly structured activist funds trade at a discount to NAV.

Activist investors have found themselves at the other side of the table before, but Icahn Enterprises is facing a short seller. Hindenburg isn’t rooting for Icahn Enterprises’ success, and hopes to profit from a continued decline in the stock. In recent years, funds run by activist investors
Nelson Peltz,

Dan Loeb,
and
Bill Ackman
have also faced activists, but their attackers were looking to improve operations and move shares higher.

Short activism is “inherently different” than traditional, long activism, one investment banker who wished to remain anonymous explained to Barron’s. In long activism, the target company and activist are generally aligned to increase shareholder value, which would be mutually beneficial. “How they get there is a matter of debate,” the banker added.

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Both Loeb and Ackman were targeted by Asset Value Investors in 2021and 2019, respectively, with AVI arguing that the funds needed to do more to narrow the discount between their share price and their underlying assets. Both funds prevailed. More recently, in 2022, Peltz shut down a London-listed investment vehicle after investors called for a board change, arguing that the fund deviated from its strategy.

So far Hindenburg appears to have the upper hand over Icahn. Icahn Enterprises stock has tumbled wider than 30% since Hindenburg’s May 2 report, and Icahn Enterprises disclosed on Wednesday that it is being investigated by the U.S. Attorney’s Office for the Southern District of New York. Icahn Enterprises did not respond to a request to comment, but the firm said in regulatory filings that it is cooperating with the investigation.

As for what this recent spate of activists-vs-activists means for the industry, some on Wall Street expect the trend to continue in light of more-challenging market dynamics—including high inflation and rising interest rates. Typically activists avoid hunting their own because they might need votes from those other activists in future campaigns, Patrick Gadson, co-head of Vinson & Elkins shareholder activism practice, told Barron’s.

“When you deal with anything involving hedge-fund managers, you’re also dealing with enormous personalities—egos that are outsize, very well earned—but they’re still huge egos. And they have long memories,” Gadson said. “When things are great, sure, [activists] will make sure they don’t cross streams, but when things get choppy, maybe they just can’t abide by those rules anymore.”

It’s enough to put hedge funds with publicly traded arms on notice.

Write to Carleton English at [email protected]