Short seller Hindenburg Research has argued activist investor Carl Icahn’s namesake conglomerate is vastly overvalued relative to its underlying assets and highly levered.
Shares in Icahn Enterprises, which holds stakes in various businesses including an energy company, an aftermarket auto parts subsidiary, and a food packaging operation, are inflated by more than 75%, alleged Hindenburg in a report Tuesday morning.
The short seller pointed out that Icahn’s publicly traded holding company trades at a 218% premium to its last reported net asset value (NAV), ‘‘vastly higher’’ than peers including Dan Loeb’s Third Point Partners and William Ackman’s Pershing Square Holdings, which traded at discounts of 16% and 35%, respectively, to their reported NAV.
Icahn Enterprises shares fell as much as 24% Tuesday morning after Hindenburg’s short report hit the wire. They were trading down 15% as of 10:35 a.m. EDT, giving the company a market value of about $15 billion. Nathan Anderson’s firm said it was inevitable that the stock reverted to NAV, which the short seller estimated at $4.4 billion.
Carl Icahn strongly rejected the view, saying in a press release: “We believe the self-serving short seller report published by Hindenburg Research today was intended solely to generate profits on Hindenburg’s short position at the expense of IEP’s long-term unitholders.”
“IEP’s performance will speak for itself over the long term as it always has,” Icahn added, noting that IEP has approximately $2 billion of cash and cash-equivalents on its balance sheet as of March 31 and that the firm uses extensive hedging strategies to mitigate risk.
Hindenburg attributed the share price performance of Icahn Enterprises to its attractive dividend, which equates to an ‘‘absurd’’ 50.5% of last reported indicative NAV, and the prospect of investing alongside Wall Street legend Carl Icahn. However, the company’s outlier dividend is ‘‘entirely unsupported’’ by its cash flow and investment performance, contended the short seller, noting that the company’s investment portfolio has lost 53% since 2014.
The short selling firm reckoned Icahn Enterprises’ NAV of $5.6 billion at the end of 2022 is inflated by at least 22% ‘‘due to a combination of overly aggressive marks on IEP’s less liquid/private investments and continued year to date underperformance.’’
The short report also speaks of an alleged lack of transparency on Icahn Enterprises’ assets and valuations and a highly levered balance sheet that limits the company’s financial flexibility.