Those funds buy into companies so Icahn can agitate for change, whether that’s new management, a strategic rethink, job cuts—whatever it takes to push up the stock and make money for Carl Icahn. But they were also where he was making those short wagers that cost him billions.
Icahn, his company, and son Brett, who is also a portfolio manager at the funds, are the sole investors in the private vehicles.
Trouble is, those private funds, the source of Icahn’s power as an activist, have been doing poorly for years. A dollar invested in them a decade ago would be worth less than 50 cents now, according to Bloomberg calculations.
‘My Army’
Those dwindling funds meant Icahn was losing the firepower needed to intimidate CEOs. So he doubled down, pouring in $3.6 billion since the start of 2013.
“He once told me: ‘my money is my army and I need my army around me,’” Stevens says.
Icahn Enterprises in February disclosed that Icahn had pledged stock worth about $9.8 billion as collateral against margin loans. Those shares are worth $5.6 billion today.
He’s since upped his pledged shares by 21 million. If the stock keeps falling, Icahn might have to repay the loans or risk having his shares liquidated. A margin call would put even more pressure on the stock.
In past regulatory filings, Icahn Enterprises said he had plenty of other assets he could use to repay his loans and avoid a margin call. In its May filing, that seemingly rote language was conspicuously absent.
One question is why Icahn would borrow so much against his stock to begin with. Before Hindenburg came along, Carl Icahn was worth about $25 billion, according to the Bloomberg Billionaires Index. Today, he’s worth $10 billion. Hindenburg has speculated the loans covered his investments into the private funds.
Icahn declined to discuss his wealth, private funds or margin loans for this story.
Hindenburg isn’t Icahn’s only problem. Icahn Enterprises disclosed on May 10 that federal prosecutors in the mighty Southern District of New York were looking into Hindenburg’s allegations. That’s the same office that went after Wall Street during the roaring 1980s, when Icahn shot to worldwide fame. The SDNY, as is its custom, declined to comment on an open inquiry.
Off Guard
Stevens, the biographer, suspects the financial blow thus far is nothing next to the personal one Icahn has suffered.
“They caught him off guard, he lost money and somebody outsmarted him,” Stevens says. “These are the three worst things that can happen to Carl Icahn.”
Up Biscayne Bay from Icahn’s island mansion, in Sunny Isles Beach, things are quiet at the headquarters of Icahn Enterprises. Icahn comes in occasionally (he tried traveling in by boat, but that got to be a hassle). Mostly he works from Indian Creek. Other employees have been coming and going as usual, the building manager says. Icahn Enterprises has instructed building staff to let only cleared visitors up to its penthouse offices.
Carl Icahn owns about 84% of Icahn Enterprises. That makes shorting its stock difficult and expensive. Only about 100,000 shares remain available to borrow, according to S3 Partners, a financial data company that tracks short sales.
Already, Icahn is plotting his defense. Icahn Enterprises has said it will buy back as much as $500 million of its shares on the open market. But it could be too late to crush Hindenburg. Activist short-sellers tend to cover most of their position quickly after successful campaigns.
Stevens, the biographer, says no one should count Icahn out. “Most of us think one or two chess moves ahead,” he says. “Carl always thinks nine or 11 moves ahead.”
‘Warrior Gene’
Carl Icahn isn’t one to go quietly. He never has.
Today, the full measure of his life—from the humble roots in Queens to pinnacles of Wall Street, the battles won and sometimes lost—is being taken by new generations of capitalists, as well as capitalism’s detractors.
Icahn has said, only half-jokingly, that his mother used to say he inherited a “warrior gene.” In the HBO documentary, the camera pans from a notebook titled “People I Want to Punch in the Face” to a pillow embroidered with words of Wall Street wisdom: “Happiness is positive cash flow.”
At one point Carl Icahn, gravel-voiced and bearded, looks into the camera and says: “I don’t like to start wars, but if someone wants to start it with me, there’s something in me that likes that—cause I’m really looking forward to going at them.”
Even now, at 87, Icahn is still Icahn. On Sunday, from Indian Creek, he says this fight isn’t over yet.
But no one can turn back time. At one point, he contemplates his age and says “I really don’t mind being old. I still love doing this.”
“It reminds me of a line in Gigi,” he adds, referring to the 1958 musical.
The fountain of youth is dull as paint,
Methuselah is my patron saint.
—With assistance from Katherine Burton, Anna Jean Kaiser, Bailey Lipschultz and Liana Baker.
This article was provided by Bloomberg News.