Icahn Sees $3.1 Billion In Wealth Evaporate After Hindenburg Research Report

The Bloomberg Billionaires index wiped away $10 billion in wealth from Carl Icahn after yesterday’s Hindenburg Research report, which called into question IEP’s dividend and portfolio marks.

The $10 billion plunge wasn’t just attributed to IEP’s fall on Tuesday, but was also due to a margin loan, collateralized by his stake in IEP, that the Billionaire’s Index hadn’t previously accounted for, the report says.

Icahn’s position on the Billionaire’s Index fell from 58th to 119th, Bloomberg notes.

In response to yesterday’s report, a mid-day statement from Icahn said it was “self-serving” and “intended solely to generate profits on Hindenburg’s short position.”

“We continue to believe that activism is the best paradigm for investing and my activist investments over the last 25 years have well proved this out. We regularly put our activist principles into effect at our majority-controlled companies as well as the minority positions held in our investment segment, and currently have representatives on 14 public company boards. Additionally, we believe strongly in hedging our positions to mitigate risk, especially in markets that we are living in today,” it continued.

Recall, yesterday, Hindenburg Research accused Icahn of “throwing stones from his own glass house”.

“Our research has found that IEP units are inflated by 75%+ due to 3 key reasons: (1) IEP trades at a 218% premium to its last reported net asset value (NAV), vastly higher than all comparables (2) we’ve uncovered clear evidence of inflated valuation marks for IEP’s less liquid and private assets (3) the company has suffered additional performance losses year to date following its last disclosure,” Hindenburg writes.

The research firm also called out the alleged unsustainability of IEP’s dividend, stating:

“The company’s outlier dividend is made possible (for now) because Carl Icahn owns roughly 85% of IEP and has been largely taking dividends in units (instead of cash), reducing the overall cash outlay required to meet the dividend payment for remaining unitholders.”

Hindenburg takes exception with IEP needing to raise cash to pay its dividend, calling it a “ponzi-like” economic structure. Hindenburg asserts:

“The dividend is entirely unsupported by IEP’s cash flow and investment performance, which has been negative for years. IEP’s investment portfolio has lost ~53% since 2014. The company’s free cash flow figures show IEP has cumulatively burned ~$4.9 billion over the same period.”

The firm also called out Jefferies for its positive coverage of IEP:

“Supporting this structure is Jefferies, the only large investment bank with research coverage on IEP. It has continuously placed a “buy” rating on IEP units. In one of the worst cases of sell-side research malpractice we’ve seen, Jefferies’ research assumes in all cases, even in its bear case, that IEP’s dividend will be safe “into perpetuity”, despite providing no support for that assumption.”

And the report concludes that Icahn will eventually have to cut its dividend: “Given limited financial flexibility and worsening liquidity, we expect Icahn Enterprises will eventually cut or eliminate its dividend entirely, barring a miracle turnaround in investment performance.”