Icahn’s Firm Seeks Bigger Stake in Top Holding While Slashing Its Own Dividend
To fund bigger war chest, Icahn Enterprises plans to halve dividend payout
Carl Icahn says he is sensing opportunity in the stock market and wants to increase his stake in a top portfolio company. But to fund his war chest, he is going to cut his investment firm’s dividend in half.
Icahn Enterprises IEP -2.35%decrease; red down pointing triangle plans to propose boosting its stake by more than 20% in CVR Energy CVI -4.73%decrease; red down pointing triangle, a small refiner in which the activist investor is the controlling shareholder, according to drafts of statements that Icahn and his firm plan to release Friday that were viewed by The Wall Street Journal.
Icahn Enterprises, known by its ticker symbol IEP, already owns about 66% of CVR’s shares outstanding. The firm is offering to boost its holdings to more than 81% by buying up to 15 million additional shares, the statements said.
Sugar Lake, Texas-based CVR’s share price has tumbled more than 45% so far this year, compared with the S&P 500 index’s gains of about 25%.
IEP plans to make its tender offer for the extra CVR shares at a per-share price of $17.50, a 6% premium to Thursday’s closing price, according to the statements.
IEP said CVR, with a market value of about $1.7 billion, is currently undervalued and that stockholders would benefit from being able to cash out at a premium, according to the statements.
To fund the transaction—and others inside and outside his portfolio down the road—Icahn said he is halving IEP’s dividend payout for the second time since a short-seller report took on his publicly traded vehicle last year. The report from the short seller, Hindenburg Research, alleged that IEP was overvalued, inflated asset marks and paid an unsustainable dividend.
Icahn, who personally owns most of IEP’s shares, has argued that Hindenburg’s report was self-serving and misleading.
In the wake of the short-seller report, Icahn’s firm cut its quarterly dividend by half, to $1 a share. IEP hadn’t previously made a dividend reduction since 2011.
With the latest cut, IEP will be paying a quarterly dividend of 50 cents, the draft statements from this week said, which would represent a 16% annualized dividend yield. IEP shares are down more than 25% year to date as of Thursday. The firm is set to report third-quarter results on Friday morning.
IEP serves as something of a war chest for Icahn’s activist campaigns and market bets, as well as holding assets such as aftermarket auto-parts chains and commercial real estate, in addition to the CVR investment.
The firm currently has about $2.3 billion in cash and cash equivalents.
“Rarely have I seen a stock market with such extreme valuations—with some companies trading at unjustifiable premiums and others being massively undervalued,” Icahn said in the statement seen by the Journal. “These undervalued situations have created great opportunities for activists.”
CVR said late last month that it was suspending its third-quarter dividend. On the heels of the news, CVR shares suffered their biggest one-day drop on record, hurting IEP’s value as well.
CVR Chief Executive David Lamp said the dividend cut reflected the company’s concerns over how long the current weak environment would persist.
CVR, which has been an IEP investment for over a decade, had been viewed as an important holding for Icahn because of the hefty dividend payouts. Icahn himself was chairman of CVR’s board of directors from 2012 to 2018.