Icahn’s Firm Seeks Bigger Stake in Top Holding While Slashing Its Own Dividend
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Carl Icahn says he is sensing opportunity in the stock market and wants to increase his stake in a top portfolio company. But to fund his war chest, he is going to cut his investment firm’s dividend in half.
Icahn Enterprises proposed boosting its stake by more than 20% in CVR Energy, a small refiner in which the activist investor is the controlling shareholder, according to statements Icahn and his firm released Friday.
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The Wall Street Journal earlier reported on Icahn’s plans to buy more CVR shares and cut his dividend Thursday.
Icahn Enterprises, known by its ticker symbol IEP, already owns about 66% of CVR’s shares outstanding. The firm is offering to boost its holdings to more than 81% by buying up to 15 million additional shares.
IEP’s shares dropped 8% Friday morning after the firm reported its third-quarter earnings and revealed its other plans. It reported a more than $400 million drop in net asset value, largely attributable to declines in CVR Energy and automotive services.
Sugar Land, Texas-based CVR’s share price has tumbled more than 45% so far this year through Thursday, compared with the S&P 500 index’s gains of about 25% over the same period.
IEP is making a tender offer for the extra CVR shares at a per-share price of $17.50, a 6% premium to Thursday’s closing price. CVR shares were trading up around 6% Friday morning, suggesting the market is optimistic about Icahn’s proposal.
IEP said CVR, with a market value of about $1.7 billion, is currently undervalued and that stockholders would benefit from being able to cash out at a premium.
To fund the transaction—and others inside and outside his portfolio down the road—Icahn said he is halving IEP’s dividend payout for the second time since a short-seller report took on his publicly traded vehicle last year. The report from the short seller, Hindenburg Research, alleged that IEP was overvalued, inflated asset marks and paid an unsustainable dividend.
Icahn, who personally owns most of IEP’s shares, has argued that Hindenburg’s report was self-serving and misleading.
In the wake of the short-seller report, Icahn’s firm cut its quarterly dividend by half, to $1 a share. IEP hadn’t previously made a dividend reduction since 2011.
With the latest cut, IEP will be paying a quarterly dividend of 50 cents, which would represent a 16% annualized dividend yield. IEP shares are down more than 25% year to date as of Thursday.