Apple Inc., Transocean LTD: What Icahn Wants He Gets

There is no doubt that when Carl Icahn gets active on an issue he is very influential. His modus-operandi is to acquire a large stake in a company and then reveal he is seeking major changes, including replacing current management.

 

Purchase Stake And Tweet It Out

 

In the old days, this type of action may have been construed as insider trading, but in today's lax regulatory environment this type of activity is commonplace. For example, Dan Loeb and Bill Ackman pursue this controversial strategy with selected issues in their portfolios.

However, no one is arguably as effective as Icahn.

Most notably, his large purchase of shares in Apple Inc. AAPL and subsequent activist role has paid off handsomely. The stock is up 45 percent since Icahn unveiled a stake on August 13, 2013.  

Although not all of his calls work out, such is being the fourth largest shareholder in TransOcean Ltd RIG as it hovers at ten year low, it is difficult to make money fading him. {Re-word?}

 

Icahn Reveals New Target After Bad News Hits the Street

 

Icahn's recent focus has shifted to Hertz Global Holdings, Inc. HTZ. Along with activist Fir Tree, Icahn sprung into action on August 20, 2014 when he announced a 8.48 percent stake in the company that included options.

 

Dreaded Accounting Issues

 

Interestingly, the prior day after-hours Hertz hit the Street with a bombshell. As previously discussed, the company was going to restate its earnings going back to 2011, and that it was withdrawing guidance due to ongoing audit costs. During the volatile after-hours session, the stock traded down to $25.98 per share before recovering.

 

Street Weighs In

 

In addition, Deutsche Bank (from Buy to Hold) and JP Morgan (from Overweight to Underweight) downgraded the stock the following day due to accounting complications.

 

Volatile Trading

 

After a four-point decline off the open (from $31.56 to $27,55), the issue was crawling its way back. When the Icahn news hit the tape around 2:40PM, the stock exploded and made a new high for the day at $30.95.

 

Icahn States His Demands

 

As usual, Icahn called for talks with the Board about finding shareholder value, accounting issues, operational failures and underperformance, and thus, was calling for management changes. Additionally, he was seeking to appoint his stooley's to the Hertz Global Board.

 

Company Complies

 

Only eight days later on August 28, there was unconfirmed chatter that the Hertz CEO, Mark Frissora was going to step down. This came to fruition on September 8, when he did resign as CEO of the embattled company. Brian MacDonald was named interim CEO and Linda Fayne Levinson was named Independent Non-Executive Chairman.

After this initial demand was completed, Icahn was not finished with his agenda. On September 11, Hertz reached an agreement-in-principle to add three directors.

The new independent directors included Vincent J. Intrieri, Samuel Merksamer and Daniel A. Ninivaggi. It should be noted that this represents nearly a third of the company's new 10-member board. More importantly, two of the these three nominees will be on five person committee to select a new CEO. Obviously, Icahn will have a major influence on that crucial decision for the future of the company.

 

No Rally Yet

 

So far, there has been muted reaction in the market to Icahn's most recent victories. In Friday's session, shares of Hertz are approaching the $28.00 level, not far from the level it was trading at on August 20, when his stake and proposed actions were reported.

The reason for this is: When “accounting issues” are plaguing a company, large investors opt to sit on the sidelines until the problem is fully resolved and the full ramifications are known. In Icahn's opinion, these may be minimal, and with management changes, shares have the potential to return to their all-time high and beyond.

Disclosure: At the time of this writing, Joel Elconin had no position in the equities mentioned in this report.

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