Over the
past few months you may have heard Carl Icahn, Michael Dell, Dell, Silver Lake,
or even heated battle, uttered from any one business news site in any random
order. If you’re anything like me two things immediately jump to mind. First,
those cheesy yet iconic “DUDE… you’re getting a Dell” commercials from back in
the day, and second, “People still buy Dell’s?” Well before I get ahead of
myself on this clash of the titans, or worse, risk offending the Dell constituency
of the blogosphere (seriously, they do offer great computers at great prices),
I think it’s important we start with the basics.
So who
exactly is Carl Icahn?
Carl Icahn,
or Uncle Carl as one of my classmates loves to call him (we'll get into that
soon), grew up in the very humble Far Rockaway neighborhood, in Queens New
York. In 1957, Icahn earned his degree in philosophy from Princeton University,
and soon after continued his studies at the New York University’s School of
Medicine, where he dropped out before graduating. In 1961, Icahn went to Wall Street
and landed his first gig working as an entry level stockbroker at Dreyfus &
company. Seven years later, he bought a seat on the NYSE and started his own brokerage
firm; Icahn & Co.
The story
really starts to pick up in the late 70’s, when Icahn began his quest as a shareholder
activist and started taking large stakes in companies such as Tappan company, Marshall
Fields, and Phillips Petroleum. However, the deal that really launched Icahn to
super-stardom was his takeover of Trans World Airlines (TWA) in 1985. Shortly
after his acquisition of TWA, Icahn helped drive up profits through improved
efficiencies, and made the organization profitable in 1987 and 1988. Icahn then
brought the company private through a share repurchase program which also
helped gain back his initial $440 million investment and then some change ($29
million to be exact). However, shortly after taking the company private competition
began to intensify among the airline industry and complicated costing
structures hindered TWA’s profitability. In 1992, TWA filed for Chapter 11 and
Icahn left the following year with $190 million worth of travel vouchers under
the condition that they were not to be sold through travel agents. Without
missing a beat, Icahn started lowestfare.com where he unloaded his small
country worth of tickets, and then went on his way to take large positions
within companies such as: RJR Nabisco, Time Warner, Motorola , Netflix, and Herbalife
just to name a few.
So what
makes the Carl Icahn approach so special?
To be
honest, the strategy is fairly straight forward:
- Step #1- Find a valuable corporation through the Graham and Dodd method for valuation (Depressed prices shown though : poor P/E ratio, high dividend yield, stock price below book and/or net current asset value).
- Step #2- Buy a up a large stake in the organization (Usually around 10%).
- Step #3- Try to either: elect a new board of directors, achieve a divestiture of assets, or straight up break up segments of the organization and liquidate.
- Step #4- Stand your ground and maintain a bad-ass, no compromise, no negotiation demeanor with existing board members, shareholders, or anyone else who gets in your way.
- Step #5- Let the stock price appreciate or receive a very generous greenmail offer and cash out.
But the
easiest strategy of all would be to follow Uncle Carl on twitter (@Carl_C_Icahn)
and hope you can snag a ride on the “Icahn Lift” before anyone else.
So what
exactly happened with Dell and Silver Lake?
Well, the
long and short of it is, Dell as an organization has been faced with some
rather staggering drops in sales over the past few years (a 72% drop in
quarterly revenue was reported in August 2013). Michael Dell, company founder
and CEO, decided Dell was due for some restructuring and partnered with private
equity firm Silver Lake Partners to buy back the company. Their plan was
simple, take Dell private, re-shape the business model back to its core values,
and hopefully save the company. Seems like a no brainer right? Well, that is
until Uncle Carl, the company’s second largest shareholder, saw the $13.65
share price offer and told Dell and Silver Lake to go fly a kite. Icahn saw
much greater value for Dell and countered with an offer for $14 per share and a
warrant for the right to purchase future shares for under $20 within certain
conditions. Well from there the saga continued, and after a long summer which
included many heated debates, tweets, and a few offers, Icahn had enough and
folded under Dell’s final offer for $13.88 per share and a dividend payout.
So
what’s next for Icahn?
According
to Icahn’s twitter account he’s spending quite a bit of time and money investing
in Apple, and has even suggested a larger scale share re-purchase program with Apple CEO
Tim Cook. One thing is for sure, given the lackluster response from the street
following Apple’s launch of the 5s and 5c, Icahn’s presence make’s this story
all the more interesting.
I hope you enjoyed this short but sweet posting on the legend that is Carl Icahn. If you have any questions, comments, or even suggestions for my next blog posting don`t hesitate to leave a comment or contact me directly (institutegoodman@gmail.com).
Until next
time I remain your
friendly neighborhood blogger,
Jon
Sources
Kroll, L, and A. Dolan, K. Forbes 400 Richest American. Forbes. Retrieved Sept 14, 2013, from http://www.forbes.com/profile/carl-icahn/
Loth, R . The Greatest Investors: Carl Icahn. Investopedia. Retrieved Sept 14, 2013, from http://www.investopedia.com/university/greatest/carlicahn.asp
Salpukas, A. Icahn on T.W.A. Woe: 'We're at Crossroads'. The New York Times. Retrieved Sept 14, 2013, from http://www.nytimes.com/1990/02/10/business/icahn-on-twa-woe-we-re-at-crossroads.html?pagewanted=all&src=pm
Ponzio, J. The Graham and Dodd Method for Valuing Stocks. Seeking Alpha. Retrieved Sept 14, 2013, from http://seekingalpha.com/article/44626-the-graham-and-dodd-method-for-valuing-stocks
Vardi, N. Michael Dell: We Are Going Back To Our Roots Taking Dell Private. Forbes . Retrieved Sept 14, 2013, from http://www.forbes.com/sites/nathanvardi/2013/09/12/michael-dell-we-are-going-back-to-our-roots-taking-dell-private/
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