Carl Icahn is undoubtedly one of the best-known and most successful investors of all time. However, it is also one of the most controversial. His aggressive takeover strategies have earned him many enemies but also substantial profits over the years.
Icahn calls himself an activist investor and protector of shareholder interests, while pundits often refer to him as a corporate raider.
With a net worth of more than $16 billion, few investors can compare to him. In any case, beyond all controversy lies an enormous ability to generate business opportunities, identify underappreciated value where there did not seem to be any, and to defend shareholders' interests to the last consequence.
Carl Celian Icahn was born in Brooklyn, New York, in 1936 and lived all his childhood in Far Rockaway, Queens. He was born into an atheist, but typical middle-class home, as his parents, a teacher and a lawyer, were atheists.
Carl's notoriety as an atheist throughout his life was a significant obstacle in his career. He attended a local public school, Far Rockaway High. Later, Icahn went to Princeton University.
Seeking to fulfill his mother's wishes to become a doctor, he began studying medicine after earning his bachelor's degree in philosophy in 1957.
But quickly realized that surgery was not his thing. After two years of wandering, he was drafted into the Army, and shortly after completing his service, he returned to New York to enter the business world, specifically Wall Street.
Icahn worked for several years in the brokerage industry and became an up-and-comer in the investment business in 1961 when he became an agent for Dreyfus & Company. By working hard and developing a vision of convertible arbitrage, Carl Icahn was able to build a large firm of his own around that idea.
In 1968, he was able to secure a seat on the New York Stock Exchange and launched Icahn & Co. Inc., a proprietary stock brokerage firm. During this period, he focused primarily on two types of investments:
- Arbitrage: arbitrage consists of buying and selling the same asset in different markets, taking advantage of mispricing opportunities.
- Options: in a very simplified form, we can say that options are contracts in which a commitment is made to buy or sell a particular asset on a specific date and at a specific price. Icahn worked primarily with options on listed stocks.
With these strategies, Icahn was already earning around $2 million a year. It was undoubtedly a triumphant start that foreshadowed a long career in the stock market.
In 1978, he began to extend his interests to various businesses. From his early days, Icahn developed an impressive resume over the years and also became known for being a tough, somewhat arbitrary, and hostile investor.
Becoming a corporate raider
After the previous stage, Carl Icahn began to build his reputation as a true "financial shark" or corporate raider.
Corporate raids and hostile takeovers boomed in the 1980s, marking the decade. Raiders started to buy companies by purchasing large stakes in their corporations, achieving control, and using their shareholder rights to manipulate the company's executive and leadership decisions forcefully. Raiders became enormously wealthy by increasing the value share of these companies through their interference.
In essence, Icahn's strategy was to acquire a large proportion of a company's stock so that he could influence board decisions. Arguing that his actions benefited ordinary shareholders.
He did this through a process called greenmail by threatening to take over companies like Marshall Field and Phillips Petroleum.
Similarly, Icahn also invested in poorly managed but high-potential companies, gaining control of the company and then pushing for management changes. During the 1980s, he bought controlling interests in small, undervalued companies and then sold them.
After recovering their value through his management changes, he used his influence to have his partners cut their stakes and sell them separately to third-party buyers. Thus, the opportunities to negotiate higher prices were more significant. Icahn often pocketed more money for 5% of a company than he had initially paid for a stake ten times higher.
In 1985 he bought Trans World Airlines (TWA). From that moment on, he began to sell company assets to recover his investment and pay back the money he had borrowed for the investment. Later, in 1988, Carl Icahn decided to delist the company from the stock exchange, earning 469 million dollars in operation and generating significant debt for the company.
Finally, he sold part of its air routes to American Airlines (for $445 million) and left the company in 1993, after a bankruptcy filing.
By the mid-1980s and throughout the 1990s, Icahn had accumulated controlling positions in several companies, including Nabisco, Texaco, blockbuster, USX, Marvel Comics, Revlon, Fairmont Hotels, Time Warner, Herbalife, Netflix, and Motorola. Each time, the billionaire sought to acquire, split or sell parts of the company.
In 2004, Icahn took part in a belligerent feud with Mylan laboratories to acquire a significant portion of its stock. By 2007, the corporate raider owned swaths of companies, including US railroad industries, XO communications, Philip services, ACF industries, and Icahn enterprises. The latter is a diversified holding company that invests in various industries controlled by none other than Carl Icahn.
In 2006, Icahn planned to oust Time Warner CEO Richard Parsons to cut the company up and sell it for parts, so he invested in it. However, he did not succeed in doing things the way he wanted, although he did succeed in his traditional push for Parsons to meet some new expectations that were set for him.
When Icahn was questioned about this in an interview with Time magazine in February 2007, he said, "Dick agreed to do what we wanted most, which was a $20 billion share buyback. He did what he promised, and the stock went up 30%. That helped shareholders. Our fund made 250 million. That's a good way to lose."
In 2008, he sold his casino shares in Nevada for a $1 billion profit, and in the same year, he launched the Icahn report, which promotes his views on the markets, stocks, and politics. He also acquired 61 million shares in Talisman Energy and revamped the faltering company.
In May 2018, Icahn significantly reduced his stake in multilevel marketing firm Herbalife ltd. after "winning" a years-long battle against hedge fund manager Bill Ackman and his fund Pershing Square, which bet $1 billion against the company in 2012, claiming it was an illegal pyramid scheme.
Foray into politics
Icahn endorsed Donald Trump in the 2016 U.S. presidential elections and also announced that he would raise $150 million for him from various donations to push his corporate tax reform proposal, which causes corporations to set up their administrative headquarters in other countries to take advantage of lower tax rates.
The Icahn Scholar Program at Choate Rosemary Hall (a high school in Connecticut) pays tuition, room, board, books, and supplies for 10 students each year (for four school years), an endowment valued at approximately $400,000 per year. The criteria for selecting these kids involve academic excellence and the socioeconomic status of their families.
A portion of Icahn's fortune has gone to medical research: He made a substantial contribution to his alma mater, Princeton University, to fund a genomics lab that bears his name. He also made significant contributions to Mount Sinai Hospital, New York, of which he is a trustee.
His foundation, Children's Rescue Fund, built the Icahn House in The Bronx, a 65-unit complex for homeless families that have provided shelter for single pregnant women and single women with children. The foundation also operates the Icahn House East and the Icahn House West, both homeless shelters in New York City.
There is a recent documentary on Carl Icahn's life and work that is definitely worth watching, as it is one of the best finance documentaries of all time.