Bill Ackman Thinks Rival Icahn's Firm Still Overvalued After Hindenburg Report: 'Reminds Me Somewhat Of Archegos'

Zinger Key Points
  • Icahn Enterprises still trade at a 50%+ premium to its NAV despite its recent stock price drop, Ackman says.
  • The fund manger says the units should in reality trade at a steep mark down, given the ownership structure and historical performance.

Pershing Square Capital Management founder and CEO Bill Ackman weighed in on billionaire Carl Icahn and his company following the release of a short report by Hindenburg Research. Ackman commented that there were some interesting takeaways from the situation that has unfolded.

The Short Seller’s Report: Hindenburg, a short seller, published a report on May 2 highlighting a 75% inflation in the unit price of Icahn Enterprises L.P. IEP. Icahn Enterprises, listed on Nasdaq, operates in various sectors including investment, energy, automotive, food packaging, real estate, home fashion, and pharma.

The short report expressed concerns based on three reasons: a significant premium of 218% at which the units traded compared to the reported net asset value, indications of inflated value for the company’s less liquid and private assets, and performance losses since the last disclosure.

Following the release of the report, Icahn Enterprises’ unit price dropped significantly from $47.51. It fell 13.39% to $23.94 on Wednesday, according to Benzinga Pro data.

What Happened: Ackman commented on the situation, stating that the key lesson learned is that a controlling shareholder with a small float and significant dividends can cause the company’s stock to trade at a large premium to its intrinsic value. He indicated that the best approximation of intrinsic value is the net asset value (NAV) per share.

Icahn, along with his son Brett, owns approximately 85% of the company, while the freely tradable shares, or float, amount to 57.32 million.

Ackman also mentioned that the inflated NAV allows the controlling shareholder to access margin loans secured by overvalued shares, which could be used for further investments.

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Stock Could Be In For Freefall: Ackman cautioned about the possibility of a sharp decline in the stock if Icahn decides to sell any shares, noting that additional sales and a loss in confidence could trigger other shareholders to exit before a potential downturn.

Still Overvalued? Despite the recent drop in stock price, Ackman highlighted that Icahn Enterprises still trades at an over 50% premium to its NAV. He suggested that considering the company’s historical performance and governance structure, a “large discount to NAV” would be more appropriate.

Déjà Vu? Ackman drew a parallel between Icahn Enterprises and Archegos, a family office that collapsed after defaulting on margin calls. Ackman said, "All it takes is for one lender to break ranks and liquidate shares or attempt to hedge before the house comes falling down. Here, the patsy is the last lender to liquidate.”

The hedge fund manager, however, offered some help for the beleaguered billionaire. Saying of Icahn, Ackman said, "Over his storied career, Icahn has made many enemies. I don’t know that he has any real friends. He could use one here."

It’s worth noting that Ackman and Icahn have a history of clashing. In 2013, they took opposing positions in the trade involving Herbalife Ltd HLF, resulting in a heated on-air debate on CNBC.

Read Next: Short-Seller Blasts Icahn Again, Raises Suspicion: ‘Where Is This Money Coming From?’

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