Carl Icahn - one of the prototypes of Gordon Gekko

Carl Icahn is one of the most famous American investors. His dispute with Bill Ackman, which concerned Herbalife, was one of the most media investor skirmishes in recent years. Years of successful investment have led him to become one of the richest people in the world, with net worth in excess of $ 15 billion. Some believe that his trading strategy from the '70s and' 80s was the inspiration for the character Gordon Gekko from the movie Wall Street. In today's article, we will present the history of this one of the most outstanding investors.

Gordon Gekko from the Wall Street movie. Source: wikipedia.org

Education and the first years of a career

Carl Icahn was born in Brooklyn in 1936. He grew up in Far Rockaway (Queens). He also went to school there (Far Rockaway High School). In 1957 he graduated from Princeton University. After being surprised by education, he joined the army. In his spare time while in the army he was playing poker. It took a few months for him to accumulate $ 4 with this game. He invested the winning amount on the stock exchange. 

After returning from the military, Carl began his career as a stockbroker with Dreyfus Corporation in 1961. In 1963 he moved to Tessel, Patrick & Co where  he worked as a trader in the options market. He did very well in this market. After working at Tessel, he moved to Gruntal & Co, where he also worked trading in the options market. At that time, it was a niche market, full of inefficiencies. As a result, arbitrage strategies and market opportunities resulting from the bad valuation of this instrument were effective.

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On my own account

After several years of work, Icahn amassed over $ 150 in savings. He decided to try his hand at the stock exchange. He persuaded his uncle Elliot Schnall to invest $ 000 in his idea. With the accumulated amount, he could buy a place on the stock exchange New York Stock Exchange. In 1968 he created Icahn & Co., in his activity, he focused on arbitrage strategies and trading in the options market.

After successfully completing the options trader step, Icahn started a strategy called greenmail. He looked for undervalued stocks, bought stocks, and then persuaded the management board to change the strategy. He encouraged the sale of the unprofitable part of the business, reduction of unnecessary costs (e.g. dismissal of employees). The released cash was to be spent on share purchases. Very often, Carl encouraged the sale of the company to competitors. The first such investment was the purchase of Tappan shares in 1977. The company produced household appliances (including it was a fairly well-known producer of microwave ovens). Icahn started buying shares for $ 8 apiece. According to Carl, the company's shares were undervalued, with the company's capitalization being only half the book value. When he gained significant influence on the operation of the company, he pushed through plans to sell the company to a competitor - Electrolux. The Tappan acquisition resulted in Icahn doubling money - he made over $ 1,3 million.

The success convinced him of the right strategy. He continued to look for overpriced companies that he sought to heal by selling unprofitable businesses, reducing investment, and looking for a potential buyer. A year later, he applied a similar practice as in Tappan at Bayswater Realty & Capital Corporation. In 1983, he acquired shares in AFC Industries to convince shareholders in 1985 to sell the shares to investor Phillips Petroleum. He made over $ 50 million on this transaction.

Source: wikipedia.org

However, not always the transactions were completely successful. In 1985, with the money of the fund and loans, Icanh acquired 50% of shares in TWA (Trans World Airlines). After three years, he indebted the company so that it could become a private company (purchase of shares from the stock exchange). As a result, Carl earned over $ 469 million. The cost was an increase in debt to over $ 540 million. Over the months that followed, Carl pursued his strategy of selling assets, suspending "unnecessary" investments, and reducing workforce. In 1991, Icahn pushed the sale of routes to London for $ 445 million to American Airlines. When the Gulf War crisis hit, TWA had to use a Chapter 11 creditors' agreement to restructure. 

Carl Icahn - From the 90's

Bill Ackman. Source: investopedia.com

In the following years, Icanh also managed to achieve very good transaction results. For example, in 1997, he made $ 125 million in profit on RJR Nabisco shares. The 2004st century brought new investments. In XNUMX, he acquired shares in Blockbuster and Time Warner. However, Carl is not a cliche. Proves investment in Netflix in 2012, where Carl acquired over 9% of the company's shares (former competitor of Blockbuster). However, in the following quarters, he reduced his position and finally got rid of the company's shares in 2015. Icahn had a nose for another tech company too - Apple Lossless Audio CODEC (ALAC),. In 2013 and 2014, it acquired a total of 211 million shares of the company. In 2016, he sold the company's shares for fear of falling demand from Chinese consumers. Interestingly, both companies grew significantly in the following years. Some estimates say that if he had held the company's shares for the next few years, his fortune would have increased by $ 40 billion. However, Icahn did not regret his decision. He was of the opinion that he had achieved a three-digit rate of return on these investments anyway, so there is no reason to complain.

One of the most media stories in recent years has been skirmish between famous billionaires - Bill Ackman and Carl Icahn. The dispute concerned the company Herbalifethat sells health and weight reduction products. In 2012, Ackman began a short sale of Herbalife stock. Ackman believed the company was an illegal financial pyramid scheme. Icahn was of a different opinion. Carl invested in the company in 2013. He increased his share in the company in the following years. In 2016, he already owned 21% of shares in the company. Contrary to Ackman's expectations, the company's share price did not fall as a result of a federal investigation. In 2018, Bill resigned from declining Herbalife stock. He lost over $ 1 billion on this. In turn, Icahn was the company's investor until 2021, when he sold the last shares. He earned $ 1,3 billion on the entire transaction. 

However, not all transactions ended with such a spectacular success. In May 2020, Carl sold his stake in Hertz. Icahn has been an investor in the company since 2014. COVID-19 has shaken the company's financial stability. After the sale of 39% of shares in the company, reported a loss of $ 2 billion.

It is also worth mentioning that Carl Icahn was a skeptic for a long time about cryptocurrency. However, in 2021, he announced that he intended to invest between $ 1-1,5 billion in this market. This means that, despite his years, he can admit a mistake and flexibly approach the investment.

Icahn Enterprise (IEP) - one of the pearls in the crown

Icahn Enterprise ($ IEP) is a US-listed company in which Carl owns over 93% of the shares. As of December 14, 2021, the company was valued by the market at over $ 13 billion. From mid-2020, the company is managed by his son - Brett.

The company operates in 8 segments:

• Investments - As of June 30, 2021, the fair value of the company's investments was $ 4,7 billion. IEP holds minority shares, incl. in companies such as: Cloudera, Newell Brands or OXY.
• Energy - among the companies owned by the company you can find, among others CVR Energy, which deals with the refining of crude oil or the production of nitrogen fertilizers.
• Automotive - IEP owns a 100% stake in the Icahn Automotive Grup, which deals in retail and wholesale of auto parts. This segment also includes the investment in 767 Auto Leasing.
• Food packaging - Icahn Enterprise owns shares in Viskase Companies, which produces cellulose materials, plastic casings for the meat and poultry industry. 
• Metals - they have shares in PSC Metals, the business of which is the recycling of metals.
• Real Estate - they build and sell single-family houses. They also own a hotel in Aruba and real estate in Atlantic City and New Jersey.
• Pharmaceuticals - they own the Vivus company, which is developing a drug for pancreatitis PANCREAZE.
• home fashion - IEP holds shares in WestPoint Home, which is, inter alia, the owner of brands such as Martex, Grand Patrician, Luxor and Vellux.

Charity work

Like a large proportion of billionaires, Carl Icahn is active in the charity field. He financed the genomics laboratory at his alma mater (Princeton University), which is now known as the Carl C. Icahn Laboratory. In addition, the billionaire also financed Icahn House in Brooklyn. It is a building consisting of 65 flats, whose tenants are single pregnant women or single mothers. In addition, it funds the operation of two homeless shelters, House East and House West, which are located in New York. It is also worth mentioning that in 2010 Carl Icahn joined the Giving Pledge list. This means that he undertakes to donate half of his property to charity.