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How Short Seller Nathan Anderson Beat Carl Icahn “at His Own Game”



Francis deSouza, the chief executive of the biotechnology giant Illumina, didn’t know what he was in for when he resisted Carl Icahn’s demand in March for three seats on the company’s board.

Mr. Icahn, the billionaire investor, hired a private investigator to dig up dirt on Mr. deSouza. He wrote letters to Illumina shareholders lambasting Mr. deSouza’s leadership and publicized details of his divorce. By June, Mr. deSouza and the chairman of Illumina had resigned. One of Mr. Icahn’s allies joined the board.

Such bare-knuckle tactics have made Mr. Icahn the nightmare of many a chief executive and changed the fate of some of America’s most iconic companies, including Apple, RJR Nabisco, Blockbuster and Netflix.

But in May, Mr. Icahn, 87, found out what it’s like to be on the receiving end when Nathan Anderson, a 39-year-old short seller, published a report questioning the setup at Icahn Enterprises, his publicly traded company. Mr. Anderson suggested that the company was paying shareholders a dividend it could not afford. Earlier this month, Icahn Enterprises succumbed to the pressure, slashing its dividend by half.

“It is very, very embarrassing for Carl because this guy beat him and beat him at his own game,” said Mark Stevens, the author of a 1993 book titled “King Icahn: The Biography of a Renegade Capitalist.”

Mr. Icahn scoffed at comparisons between himself and Mr. Anderson, whose short-selling firm Hindenburg Research has made news recently for its attacks on companies like the electric vehicle maker Nikola and the Adani Group, one of India’s most powerful conglomerates.

“He goes out and scares the little guy into selling stock at the worst time and taking big losses,” Mr. Icahn said during one of several phone interviews over the past month, referring to everyday investors. He said Mr. Anderson did not call him before publishing the report, denying him the opportunity to present his side of things.

Short sellers borrow stock held by big investors and sell it in the open market, betting that its price will fall. If they bet right, they can buy the borrowed shares back at the lower price, return them and pocket the difference. Hindenburg publishes research supporting its short bets.

Mr. Icahn said he buys and holds stocks for years and makes changes from the inside. “I’m not telling you I’m a charity organization,” he said. But “what we do is very admirable.” In a recent earnings release, he said that investors who bought his company’s stock in January 2000 and reinvested their dividends would have done far better than any stock index. (As of July 31, he said, his investors would have an annualized return of 12.8 percent compared to 6.9 percent for the S&P 500).

Mr. Icahn was one of the first corporate raiders — now known as activist investors — who bought stakes in companies and pushed management to make changes. His main vehicle was a hedge fund until 2007, when he folded it into a publicly traded entity he also owned. The new entity, Icahn Enterprises, diversified beyond activism and holds stocks, real estate and other investments.

Mr. Icahn, who friends and acquaintances say often drinks a martini or two in between haranguing chief executives late at night, discovered his appetite for rattling company cages in the late 1970s.

Born in Far Rockaway, Queens, in 1936, the only child of a cantor at a synagogue and a schoolteacher, Mr. Icahn attended Princeton University, where he worked in the dining hall to help pay for his tuition. At his mother’s urging, he attended New York University’s medical school before dropping out. After a brief stint in the U.S. Army, he went to work on Wall Street. In 1968, he started his own investment firm with a loan from his uncle.

One of his first successes came when he pushed Tappan, a family-owned company that made ovens, to sell to a larger competitor. The campaign made him roughly $3 million.

He became a household name in the 1980s for his attempts to take over some of that decade’s most prominent companies. In 1985, he bought Trans World Airlines. His tumultuous reign as chairman began with battles with the flight attendants’ union that grounded the airline for weeks when they went on strike. It ended, mostly, when T.W.A. declared bankruptcy in 1992. Along the way, Mr. Icahn piled debt on the company, which allowed him to take out cash and generate a profit for himself.

One of his big victories involved RJR Nabisco, the food and tobacco giant that he pushed to split into two beginning in 1996. When the company eventually spun off its food business, Mr. Icahn pocketed $884 million by the time he sold his stock in late 2000.

In 2011, he began a multiyear attack on the drug company Forest Labs, accusing it of destroying shareholder value. He ousted the chief executive and pushed for a sale. Shares of Forest Labs tripled during that time, netting Mr. Icahn about $2 billion in profit. He also successfully pushed Apple to buy back its stock in 2013, which made him $1.8 billion by the time he sold his stake.

Mr. Icahn estimated that his activist campaigns at a dozen companies, including Apple, eBay and PayPal, Forest Labs, Herbalife and Netflix, and have helped generate $300 billion in additional value for the shareholders of those companies. The bulk of it came from Apple.

Forbes estimated Mr. Icahn’s fortune at about $18 billion earlier this year, although that number has been cut roughly in half since the Hindenburg report.

Still, Mr. Icahn’s bets haven’t always worked out for him or the target. When he joined the board of Blockbuster Video in 2005, John Antioco, then the chief executive of the company, was surprised at how little Mr. Icahn knew about the business.

Once Carl catches the bus, I’m not sure he knows what to do with it,” Mr. Antioco said. Still, he said Mr. Icahn supported his plans to move Blockbuster’s business online. In 2007, after a battle over compensation, Mr. Antioco resigned. He said he was taken aback when Mr. Icahn brought in a new chief executive who refocused on retail stores. Blockbuster declared bankruptcy a few years later.

Mr. Icahn, who called Blockbuster his “worst investment ever,” said he blames himself for allowing the new chief executive to focus on retail. “We almost made it great.”

He has also lost money on some recent activist campaigns. The stock of Xerox, where he’s the largest shareholder, is down since he took a stake in 2015. International Flavors & Fragrances is trading at roughly half the price that it was when he bought shares in early 2022. Illumina, which is now searching for a new chief executive, is down about 20 percent since Mr. Icahn began his campaign.

At the same time, friends said that money is not what drives Mr. Icahn.

“It sounds corny, but money is just not that important to Carl,” said Buzzy Krongard, a director at Icahn Enterprises and a longtime friend who overlapped with him as an undergraduate at Princeton. “It’s winning that’s important,” Mr. Krongard said. “Carl enjoys the battle itself.”

Often, the battle extends beyond activism. In 2003, the real estate developer Harry Macklowe bought the General Motors Building in Manhattan for a record-setting price of $1.4 billion. Mr. Icahn, a friend of Mr. Macklowe, had a lease at a below-market rate for one of the top floors of the 50-story building that was about to expire.

When one of the brokers for Mr. Macklowe’s firm approached Mr. Icahn about a new lease with higher rent, he yelled at the broker to leave his office. He wouldn’t engage in any conversations with Mr. Macklowe or his team, according to two people with knowledge of the negotiations. It was only when they began giving tours to prospective tenants and lined one up that Mr. Icahn agreed to negotiate a new lease.

A night owl who plays tennis almost every day, Mr. Icahn said he usually rises before the stock market opens but is known to work past midnight. Employees are known to keep notebooks next to their night stands in case their boss calls after they fall asleep, although Mr. Icahn said he rarely calls employees after midnight.

Friends and associates of Mr. Icahn said he bets on everything from poker games to chess matches. Once, when he was in Las Vegas, he even bet a million dollars that the San Francisco 49ers would win the Super Bowl. (They won, netting him a few hundred thousand dollars). But it’s the high-stakes betting on companies — and the chance to influence their future — that he finds thrilling, they said.

Mr. Icahn and his 44-year-old son, Brett, are controlling shareholders of Icahn Enterprises, with 85 percent of the stock. Outside shareholders — mostly retail investors — own the rest. In 2020, Mr. Icahn said in regulatory filings that his son would succeed him by 2027 or sooner, but he remains the face of the company for now.

In May, Hindenburg published research suggesting that Icahn Enterprises was valued more highly than its peers because it paid a lucrative dividend to shareholders despite reporting quarterly losses, which kept investors buying the stock. “Icahn has been using money taken in from new investors to pay out dividends to old investors,” Mr. Anderson wrote, comparing it to a “Ponzi-like economic structure” that was unsustainable.

Mr. Anderson also suggested that if Icahn Enterprises stopped paying dividends, the value of its stock would fall, which meant that Mr. Icahn would struggle to repay billions of dollars he had borrowed against his personal stake in the company. That could set off a downward spiral. Mr. Anderson also accused Mr. Icahn of inflating the value of his private investments.

The Securities and Exchange Commission and Department of Justice started investigations into Mr. Icahn’s business practices after the Hindenburg report.

The stock of Icahn Enterprises fell by more than 50 percent after the Hindenburg report, compelling Mr. Icahn to renegotiate the terms of his loans in July, which “significantly diffused” the effects of the report. Earlier this month, the company also cut its dividend by half.

He recently acknowledged that his firm’s short bet against the S&P 500 has cost him roughly $9 billion over roughly six years and told investors he would refocus on activism.

Mr. Anderson said that Mr. Icahn could still struggle to repay his loans and refinance some of the debt given the high interest rates. “The next chapter of his financial high wire act will be difficult.”

Mr. Icahn said higher rates are immaterial to his company’s performance. He is as determined as ever to use his billions of borrowed money to go after his next targets, using his activist’s instinct honed over a nearly five-decade career.

When he sees a potentially winning investment, “you take as much money as you can that’s available and buy that stock as far as you can go,” Mr. Icahn said. “That’s where you make the money.”




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