The greenmailer - Carl Icahn By: Shiraz Ahmad - Articles Detail
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The greenmailer - Carl Icahn  Back
By: Shiraz Ahmad
“You learn in this business..
If you want a friend, get a dog” --Carl Icahn

While Icahn's name is now synonymous with titanic corporate battles, the Queens, NY, native seemed at first to be heading for a peaceful career as a teacher or doctor, earning a degree in philosophy at Princeton and attending medical school before dropping out to pursue arbitrage on Wall Street. During the 1980s he made a fortune for himself in his forays against companies ranging from American Can to Uniroyal (and profits for shareholders too in the case of Texaco and, later, RJR Nabisco), despite a few high-profile misses. But it wasn't until recent years that Icahn began assembling the infrastructure he has now.
Carl Celian Icahn (born February 16, 1936) is an American billionaire financier, corporate raider, and private equity investor. His net worth is US$14 billion as of 2008, making him the 46th richest man in the world. While a New Icahn is taking activism to new heights, the Old Icahn, the outrageous showman, is still at center stage. Icahn remains the most intimidating, the most self-aggrandising investor in the game, a gangling, 6-foot-3-inch self-proclaimed crusader who, as he quaintly puts it, "takes umbrage" at management's incompetence and responds with a scorched-earth fervour not exactly appreciated by the members of the Business Roundtable. His weaknesses are as outsized as his strengths, especially his penchant for launching shrill personal attacks on CEOs, including Zander. "He's especially good at terrorising people and wearing down their defences," says his longtime friend and frequent adversary, the renowned investor Wilbur Ross. "He's the most competitive person I know, and that's saying something."
No longer is the lone wolf, Icahn more formidable than ever, having built a team of two dozen associates to help him find targets and mount his crusades.
Icahn was raised in Far Rockaway, Queens, New York City. He was educated at Princeton University (A B, Philosophy, 1957) and New York University School of Medicine, but left prior to graduation.
Icahn began his career on Wall Street in 1961. In 1968, he formed Icahn & Co, a securities firm that focused on risk arbitrage and options trading. In 1978, he began taking control positions in individual companies. He has taken substantial or controlling positions in various corporations including: RJR Nabisco, TWA, Texaco, Phillips Petroleum, Western Union, Gulf & Western, Viacom, Uniroyal, Dan River, Marshall Field, E-II (Culligan and Samsonite), American Can, USX, Marvel Comics, Revlon, Imclone, Federal-Mogul, Fairmont Hotels, Kerr-McGee, Time Warner and Motorola.
Icahn developed a reputation as a corporate raider after his hostile takeover of TWA in 1985. Recently, Icahn was shown to be interested in the takeover of Yahoo! and the ousting of Jerry Yang from his current position as CEO to allow Microsoft to purchase the web company.
Most of all, it's the rise of hedge funds that's giving Icahn his new stature. Hedge funds are to today's activism what junk bonds were in the 1980s, only more so. "The hedge funds, unlike a lot of mutual funds, are extremely performance-oriented," says Icahn. "They're far more willing to vote against management." When Icahn attacks a company, hedge funds typically flood in behind him - witness how Highfields Capital, Tudor Investment, and others followed his lead into Motorola stock.
According to Icahn, the hedge funds would rather let the old veteran do the gritty work. "It's still not easy running a proxy battle with the company's machinery all lined up against you," says Icahn. Indeed, Icahn claims it's what he calls his "brand name," the perception that he can't be intimidated and won't go away, that gives him his power as an activist.
Big deals
"As of 2007, Icahn and his affiliates currently own majority positions in firms including ACF Industries, American Railcar Industries, XO Communications, Philip Services, and NYSE-listed Icahn Enterprises, formerly known as American Real Estate Partners.
"Icahn is a director of Blockbuster Inc., and the Chairman of Imclone, Icahn Enterprises LP, XO Communications Inc, WestPoint Home Inc., Cadus, and American Railcar Industries. Also he is a beneficial owner of Adventrx Pharmaceuticals Inc, Vector Group Ltd and has had significant holdings in Time Warner Inc. He has casino interests in Las Vegas, Nevada (pending sale), including the Stratosphere, Arizona Charlie's Boulder and Arizona Charlie's Decatur, which are operated through American Entertainment Properties, a subsidiary of Icahn's major company American Real Estate Partners. Icahn has also tried to take over Marvel Comics, coming into conflict with Avi Arad, Ron Perelman, and Ike Perlmutter.
"In 2004, Icahn purchased a large block of stock in a pharmaceutical concern, Mylan Laboratories, after Mylan had announced a deal to acquire another company in that market, King Pharmaceuticals, of Bristol, Tennessee. Icahn threatened a proxy fight over the acquisition, saying that the contract required Mylan to over-pay. He also contended that Mylan's chief executive, Robert J Coury was significantly overcompensated and that Mylan's corporate governance was otherwise badly flawed.
"In early 2005, Mylan gave up its efforts to acquire King, but management said this was a result of its ongoing monitoring of relevant facts, not due to pressure from Icahn.
"In 2006 Icahn sold his stake in KT&G (Korea Tobacco & Ginseng) for a significant profit.
"Icahn made an attempted run as a major shareholder of Time Warner owning about 3.3 per cent of the company valued at billions of dollars. He has been actively attempting to influence the direction of Time Warner, often in conflict with its former Chief Executive, Richard Parsons. Although Time Warner recently sold 5 per cent of its AOL division, Icahn has been pressing for additional action to increase shareholder value. On February 7, 2006, a group led by Icahn and Lazard Frères CEO Bruce Wasserstein unveiled a 343-page proposal calling for the breakup of Time Warner into four companies and stock buybacks totaling approximately $20 billion. On February 17, 2006, the Icahn-led group agreed with Time Warner to not contest the re-election of TW's slate of board members at the 2006 shareholders meeting. In exchange for the Icahn group's cooperation, Time Warner will buy back up $20 billion of stock, nominate more independent members to the board of directors, cut $1 billion of costs by 2007, and continue discussions with the Icahn group over their proposal, particularly on the future of Time Warner Cable.
Carl Icahn is one of Wall Street's most successful figures. In the 1980s, this corporate raider - using Drexel Burnham's junk bonds - became known as a vulture capitalist, taking positions in public corporations and initially demanding extreme changes in both their corporate leadership and management styles. Often, targets paid him "greenmail" money, with the stipulation that he would step away from his target. By the end of the 20th century, his reputation changed and he was starting to be described as a shareholder activist.
Investment Philosophy
Icahn has stated, "My investment philosophy, generally, with exceptions, is to buy something when no one wants it." More specifically, as a contrarian investor he identifies corporations whose stock prices are reflective of poor price-to-earnings (P/E) ratios or whose book values exceed the current market valuation.  Icahn then aggressively purchases a significant position in the corporation and either calls for the election of an entirely new board of directors or the divestiture of assets in order to deliver more value to shareholders. The compensation of CEOs is a subject on which Icahn focuses publicly, as he believes that many are grossly overpaid and that their pay has little correlation to stock performance.
In 1979, Icahn's first victory was the takeover through a proxy vote of Tappan Company. Soon after winning a seat on the board, he engineered the sale of the company in a transaction that doubled his initial investment. Soon after, he would target Marshall Fields and Phillips Petroleum, both of which yielded him enormous returns as the companies fought to stave off his control.
TWA was the pinnacle of Icahn's early endeavors. In 1985, he took over the airline once controlled by Howard Hughes. Soon after, TWA bought several small regional carriers, as Icahn sought to use the broadened airline's efficiency to generate greater profits. In 1988, he took the company private through a $650 million stock-buyback plan that allowed him to regain almost his entire $469 million investment. This also saddled TWA with $540 million in debt. Soon after, the airline's most prized routes would be sold to competitors, leading the weakened business to declare Chapter 11 in 1992 and Icahn's leaving the company at the beginning of the following year.
In the interim, Icahn negotiated for airline vouchers from the company in lieu of the $190 million that TWA owed him. As the deal included the provision that he could not sell these tickets through travel agents, Icahn founded, where he both sold the tickets and created a revolution in the travel industry.
Reflections on                  TWA Experience
Icahn's experience with TWA would guide him to focus primarily upon seeking profit via underlying share-price increases, which are usually achieved by the divestiture or outright liquidation of assets. Another outcome is the direct payment of greenmail to Icahn. The methodology employed begins with the purchase of a large block of shares in the corporation, followed by the proposal of a slate of directors, which include Icahn and his allies.  One example of his mode of operating was his compelling of USX - the corporate descendant of Andrew Carnegie's US Steel - to spin off its steel-manufacturing division and instead focus on the petroleum business through Marathon Oil, a company once owned by John D Rockefeller. In 1991, following the creation of a second class of USX shares to represent the steel division, both classes of stocks rose 28 per cent. Icahn's deals include his acting as a catalyst during the battle between Pennzoil and Texaco. There, Icahn accumulated over 13 per cent of Texaco's stock and failed in his effort to take control of the board. However, the final agreement between the litigating corporations caused a rise in both their stock prices, bringing Icahn a financial windfall.
More recent successes
In another infamous battle, Icahn accumulated a 7.3 per cent stake in RJR Nabisco during the late 1990s. He then launched a proxy fight both to gain control of the board and to force the break-up of the company. Even though he was unsuccessful in these efforts, he realized victory through an extraordinary profit in his investment as the company's management was supported by investors, enough to give Icahn a $100 million increase in his portfolio. In a similar fashion, Icahn failed to force Time Warner to split its operations into four separately listed companies as he campaigned in 2006. Though rebuffed by that corporation's other major shareholders, Icahn both reaped a large profit in his investment and pressed the company to elect two independent board members and commit to cost-cutting measures. Another example of Icahn's success is his investment in BEA Systems. In the autumn of 2007, true to his contrarian philosophy, Icahn accumulated over 13 per cent of the company as its price sunk. When Oracle offered to take over the company, Icahn announced that a bidding war was in order. The "Icahn lift" sent BEA to a 52-week high and increased his position's value to the tune of over $200 million.  Descriptions of Carl Icahn range from vulture capitalist to greenmailer to gadfly to shareholder activist. In fact, neither his philosophy nor his strategy has changed much over the past three decades, in which he rose from a stockbroker to one of Wall Street's most influential players.  Similar investors such as T Boone Pickens and Saul Steinberg employed hardball tactics in their runs against the boards of undervalued public corporations. However, Icahn's war chest has grown not only from the accumulation of his profits from past deals but also through his creating a multi-billion dollar hedge fund called Icahn Partners LP Founded in 2004, this investment vehicle offers Icahn additional resources outside his enormous personal fortune to use in the strategic investments, which are the forces behind the "Icahn lift".