Carl Icahn’s empire reveals indicators of pressure | USAEMALL.com

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Carl Icahn’s efforts to stabilise his corporate empire rest in part on a small Midwestern refinery and a scrapyard on the outskirts of Nashville, Tennessee.

The billionaire activist investor slashed the dividend of his publicly listed holding company in half on Friday, sending its stock tumbling and adding to a litany of financial troubles for the 88-year-old financier.

Icahn Enterprises, his listed conglomerate, has seen its shares plunge this year due to losses in its investment portfolio and operational problems across its businesses spanning car repair dealerships, sausage packaging operations and oil refineries, which have eaten into its cash flows.

It has been an ignominious stretch for the legendary corporate raider, who made his name in the 1980s with huge stakes in oil majors, airlines and consumer products companies.

Executives said on Friday they had fired senior managers of its Pep Boys car repair unit, after it ran out of tyres last quarter — due to a cost-cutting effort to buy cheap tyres from a new vendor. The operational crisis forced Icahn Enterprises to write down the value of Pep Boys by $193mn.

Icahn’s representatives did not respond to interview requests on Friday.

Last month, its largest investment, a controlling interest in refinery CVR Energy, was pummelled after the group eliminated its dividend to conserve cash amid power outages and heavy spending needs. That cut off a vital source of funds for Icahn Enterprises.

On Friday, Icahn Enterprises followed suit, halving its quarterly payout from $1 per share to 50 cents, in a move designed to save cash and double down on its refining operations.

But it scared shareholders, many of whom were attracted to the conglomerate for its high yields. Icahn Enterprises’ stock fell 6 per cent, putting year-to-date losses at about 38 per cent.

In addition to cash flow shortfalls that drove the dividend cut, Icahn Enterprises has seen the value of its assets quickly erode. Its net asset value per share has declined 35 per cent this year.

Those losses are putting financial strain on Icahn, who borrowed billions in personal loans against his shares in Icahn Enterprises, using the stock as collateral for as much as $5bn from a group of banks in recent years.

Icahn’s heavy borrowing came during a decade-long stretch of losses in his investment portfolio due to large bets he held against booming financial markets. The feared activist has pledged substantial assets as collateral against the loans and now must repay the debts in coming years after some of their values have fallen.

Now Icahn is betting that he can pull off a revival by selling a metals scrapyard he acquired more than a decade ago.

In 2007, Icahn acquired a scrap metals company called PSC Metals with a large junkyard in Nashville. When Icahn sold the company in 2021, he held on to PSC’s 45-acre scrapyard in the city’s industrial “East Bank” neighbourhood, betting he could eventually flip the property when the area was gentrified.

On Friday, executives at Icahn Enterprises told shareholders they had put the property up for sale and hoped to make a 10-fold gain on its $25mn carrying value.

The National Football League’s Tennessee Titans are building a stadium adjacent to the scrapyard and the area is part of a giant urban renewal plan in one of America’s fastest growing cities. It has turned the industrial wasteland into a coveted property, according to local real estate executives.

Icahn also told shareholders on Friday he decided to cut his conglomerate’s dividend because he wants to buy additional shares in CVR Energy. He has launched a tender offer to buy $263mn in CVR stock, boosting Icahn Enterprises’ ownership from 66 per cent to 81 per cent.

Icahn Enterprises characterised the manoeuvre as opportunistic after an about 20 per cent tumble in CVR’s shares last month, giving it greater ownership in a refining operation that has paid out over $3bn in dividends to the conglomerate since 2012.

“[We] think the decisions we made today will actually help cash flow in the future,” said Andrew Teno, chief executive, referring to the tender offer.

The trade could benefit from a new administration in the US. CVR carries $374mn of liabilities due to a federal mandate to mix biofuels into petrol supplies or buy credits to make up the shortfall.

But the refinery has sued the federal government over the mandate and recently blasted the Biden administration’s “egregious conduct” in keeping refineries that had won some legal challenges to the payments hanging. “[The] financial impact of their actions threaten the very existence of small refineries like ours,” said CVR chief executive David Lamp.

But the new administration could offer the relief CVR is seeking, removing a big financial burden.

“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 a prepared statement on Friday.