Iconic activist investor Carl Icahn was on Tuesday hit with a challenge of his own from a prominent short seller, who alleged the billionaire’s conglomerate is substantially overvalued, sending shares of a company owned by him plunging.
Icahn Enterprises shares slumped 20 percent to a three-year low in their busiest day ever after Hindenburg Research said it was shorting the stock, charging the company was overvalued and that Icahn was operating a “Ponzi-like economic structure”.
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“In brief, Icahn has been using money taken in from new investors to pay out dividends to old investors,” said Hindenburg, claiming Icahn sells partnership units to new investors to support dividend payouts to existing investors.
Reuters could not independently verify the claims Hindenburg made in its report.
The company, based in Sunny Isles Beach, Florida in the US, is the latest high-profile target of Hindenburg Research, which earlier this year went after India’s Adani Group, causing a rout in that company’s shares.
Icahn Enterprises is one of the most successful activist investment firms and the chief investment vehicle for Icahn, who is known for his face-offs with several high-profile firms. He did not respond to a request for comment.
Shares were down $12.03, or 24 percent, to $38.39 on more than 10 million shares traded, the busiest day in history for the firm, according to Refinitiv Eikon data.
‘Too much leverage’
Hindenburg, founded in 2017, said IEP’s units are overvalued by more than 75 percent and that “IEP trades at a 218 percent premium to its last reported net asset value (NAV), vastly higher than all comparables.”
The short seller also took aim at the close relationship between investment bank Jefferies and Icahn. Hindenburg noted that Jefferies’ research assumed that Icahn’s dividends would be paid in perpetuity even in a worst-case scenario, that it has acted as a bookrunner for its unit sale and that CEO Richard Handler has a close relationship with Icahn.
The bank did not immediately respond to a Reuters request for comment.
Earlier this year, Hindenburg’s report on India’s Adani Group knocked more than $100bn in value off the conglomerate’s shares, and last month, the short seller took aim at Jack Dorsey-led Block Inc.
Hindenburg said peers like Dan Loeb’s Third Point and Bill Ackman’s Pershing Square trade at a discount to their respective NAVs. NAV is a key gauge of a fund’s performance, measuring the market value of securities held by the fund.
“We think Icahn, a legend of Wall Street, has made a classic mistake of taking on too much leverage in the face of sustained losses: a combination that rarely ends well,” the short seller said.
Icahn, 87, has pressed for changes at a number of companies over the years including Herbalife. In August, fast-food giant McDonald’s Corp amended its board and replaced a director targeted by Icahn.
Most recently, Icahn has been involved in a proxy fight with Illumina Inc to push the US life sciences firm to unwind its 2021 buyout of Grail.
Short sellers typically sell borrowed securities and aim to buy these back at a lower price.