When hedge fund managers lock horns, investors certainly perk up and pay attention. Notable adversaries for years, hedge fund managers Bill Ackman and Carl Icahn have once again dropped the gloves. This time, Icahn Enterprises (NASDAQ:IEP) is the company that’s taken the majority of the blows, with IEP stock down another 20% in today’s session.
This move comes amid new tension between the two hedge fund managers. A previous short-seller report targeting Icahn Enterprises is again the topic of the day. The report alleges the use of new investor funds to pay out what appears to be an unsustainable dividend. Bill Ackman released a long Twitter post yesterday, in which he sided with Hindenburg Research on many points of the report.
Let’s dive into what Ackman said and why investors are selling IEP stock today.
IEP Stock Plunges on Ackman Comments
Ackman and Icahn have feuded for years. A long-standing debate over Herbalife (NYSE:HLF) has caused most of their disagreements. Ackman took a very large short position, and Icahn was one of the company’s biggest backers. Then, Ackman accused the company of being a pyramid scheme, ultimately losing a significant amount of money on his short position.
This time around, Icahn’s core holding company is the topic of dispute among many in the financial community. An outside short seller, Hindenburg Research, dove into the numbers. Ultimately, the firm suggested that Icahn Enterprise’s yield is supported by new capital inflows rather than operating cash flows.
Ackman seconded these claims, saying in his post:
“The premium to NAV creates liquidity for the controlling shareholder by enabling him to access margin loans secured by overvalued shares that can be used to fund investments. The $IEP premium has been sustained by a large dividend yield, which is not supported by operating cash flows. The yield is generated by returning capital to outside shareholders, which is in turn funded by the company selling stock to investors. This system has worked for a considerable period of time, but it is highly dependent on the maintenance of the premium and the placidity of Icahn’s margin lender(s).”
These concerns appear to be hitting home with many existing shareholders, who don’t want to see what would happen if IEP stock trades near, or even below, its net asset value (NAV). Ackman suggests such a drop (which would be be significant) could take place. I’ll keep an eye on how IEP stock performs from here. But suffice it to say, it appears this downside move has momentum.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
