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Shares of Icahn Enterprises LP (NASDAQ:IEP) had their worst day of trading since October 2002, falling nearly 20% on Tuesday after the release of a highly negative report by short seller Hindenberg Research.
Hindenburg Research alleged in a study titled “Icahn Enterprises: The Corporate Raider Throwing Stones From His Own Glass House” that the company in which notorious activist investor Carl Icahn owns 85% of its shares follows a Ponzi Scheme structure and is extremely expensive. .
In reaction to the report, Icahn Enterprises’ share price fell to its lowest level since March 2020, when Covid-19 hit.
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Benzinga has contacted Icahn Enterprises for a statement regarding the short report and is currently awaiting their response.
Chart: Icahn Enterprises shares crash to March 2020 lows on worst day in two decades
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The Hindenburg Research Report on Icahn Companies offers five key points for investors:
1) Icahn Enterprises is significantly overvalued relative to its net asset value
Hindenburg Research found that the total investment value of Icahn Enterprises’ corporate assets was either clearly inflated due to losses not yet included in the latest 2022 year-end NAV calculation, or grossly overvalued. due to an obvious overstatement of less liquid assets.
According to the short seller, among the 526 US-based CEFs in Bloomberg’s database, IEP is trading at an astonishing 218% premium to its last published NAV. That’s more than double the next largest bounty they identified.
2) Competitors are trading near or at a discount to their NAVs
According to Hindenburg Research, Icahn Enterprises’ main rivals Third Point and Pershing Square are trading at 14% and 35% discounts to NAV, respectively.
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3) A Ponzi scheme hides under the outrageously high dividends
Among large US companies, Icahn Enterprises has the highest dividend yield, at around 15.8%. According to Hindenburg Research, such a high payout is made possible because Carl Icahn controls approximately 85% of IEP and has received dividends in units (rather than cash), thereby reducing the overall cash outlay needed to satisfy the payout. dividends to other unitholders. Since 2019, the company has had to raise a total of $1.7 billion through the open market sale of IEP units in order to maintain its dividend.
In a nutshell, Icahn paid dividends to existing shareholders on the money he raised from new investors, using a Ponzi scheme structure, Hindenburg Research explains.
4) One Sell Side Research Covering IEP has a close relationship with Carl Icahn
The only major investment bank covering Icahn Enterprises, Jefferies Financial Group (NYSE:JEF), has always given IEP units a “Buy” recommendation and believes dividends are secure “in perpetuity.”
Over the years, current Jefferies CEO Richard Handler has had a close relationship with Carl Icahn. Icahn helped Jefferies during the global financial crisis, according to a 2014 article, and Jefferies appears to be repaying the favor.
5) A significant lack of transparency exists under the measures of Icahn Enterprises
Unitholders have not received critical information about the health of Icahn Enterprises. Icahn did not disclose his margin loans, such as loan-to-value (LTV), maintenance thresholds, principal amount or interest rates.
In January 2020, UBS analyst Brennan Hawken cited Icahn’s lack of transparency as a key reason for dropping coverage.
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2023 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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