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Carl Icahn: investments and strategies
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The news broke into the investors’ media space that Carl Icahn acquired 9.91% of JetBlue’s shares, after which they grew by almost 15%. What caused such a stir?
The fact is that Carl Icahn is one of the iconic figures on Wall Street, whose name is inextricably linked with corporate raiding and activist investing. In the 1980s, he gained fame as a “vulture capitalist.” Icahn’s key strategy is to become a shareholder in public companies, pushing for radical changes in their corporate governance.
The beginning of the way
Carl Icahn was born in New York on February 16, 1936. He was the only child in the family: his mother worked as a teacher, and his father combined the professions of a teacher, lawyer and cantor. After graduating from high school, Icahn attended Princeton University, where he received a bachelor’s degree in philosophy in 1957. After continuing his education, he entered New York University to study medicine. However, two years later, Icahn left his studies and enlisted in the US Army Reserve. After demobilization, he began a career as a stockbroker, working for several firms. In 1968, using a $400,000 loan from his uncle, Icahn founded his own brokerage firm, Icahn and Company.
Main achievements
Carl Icahn’s first success came in 1979 when he took a seat on the board of directors of Tappan. Immediately after this, he entered into a successful deal to sell a cookstove manufacturer, which brought him a profit of $3 million.
Icahn primarily became known for increasing the share price of his investments by forcing the sale of undervalued company assets. The investor acquired significant stakes in corporations and then proposed his slate of candidates for election to the board of directors at the companies’ annual meetings.
Using this tactic, Icahn ensured that USX, the successor to the U.S. Corporation. Steel by Andrew Carnegie, spun off the steel business and focused on the oil business through Marathon Oil. In 1991, after the introduction of a second class of USX shares to track the steel business, both classes of shares rose 28%.
Icahn also became involved in the dispute between Pennzoil and Texaco over Getty Oil. He acquired more than 13% of Texaco’s shares, but was unable to gain control of the board of directors. However, he was able to profit from this situation when the resolution of the conflict led to a rise in Texaco shares, which brought Icahn a financial windfall.
In the fall of 2012, Carl Icahn turned his attention to Netflix Inc. In keeping with his contrarian approach, he acquired more than 10% of the company’s shares when the stock was near its 52-week low. The “Icahn effect” caused Netflix’s share price to increase by 14% after it disclosed its shareholding to regulators. By the time he ended his involvement with the company in 2015, Icahn had earned more than $1.9 billion from his initial $321 million investment.
Investment philosophy
Carl Icahn delineated his investment strategy, highlighting a preference for acquiring assets when they are not attracting interest from other investors. Specifically, he targets stocks with low price-to-earnings (P/E) ratios or assets whose intrinsic value surpasses their current market valuations.
Following this approach, Icahn engages in assertive transactions, securing substantial positions in companies, and subsequently advocates for the appointment of a new board of directors or the divestiture of assets to optimize benefits for shareholders. He places emphasis on scrutinizing executive compensation, contending that many executives receive excessively high salaries that do not align proportionately with shareholder returns.
As a result, analysts anticipate that Icahn’s actions with regard to JetBlue may instigate a comprehensive restructuring within the U.S. airline industry.
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