Things are going from bad to worse for hedge fund billionaire Carl Icahn. Icahn Enterprises stock is down over 20% today after prominent fund manager Bill Ackman predicted disaster for the firm.
In a lengthy tweet yesterday, Ackman outlines a nightmare scenario for the stock:
Icahn owns 85% of the stock in Icahn Enterprises, per Bloomberg. Most of it is pledged as collateral for margin loans — as much as 65%, per Ackman’s estimate.
Meanwhile, nearly all of Icahn’s net worth is tied up in Icahn Enterprises stock.
The stock is down over 60% since a Hindenburg Research report at the beginning of the month called the company “Ponzi-like.” Now, the Justice Department is investigating Icahn Enterprises.
Icahn’s margin lenders must be getting nervous, as Ackman points out. Wouldn’t you be?
If even one of them calls Icahn’s loan, he could be forced to sell large blocks of stock. Since he owns 85% of the float, that would cause Icahn Enterprises stock to drop like a stone.
Icahn has taken huge losses in the weeks since the Hindenburg report. As I write this on Thursday afternoon, his losses likely approach $20 billion.
Ackman and Icahn have a feud that goes back twenty years. But Ackman’s criticism of Icahn Enterprises is valid.
Issuing stock to pay a fat dividend makes no sense. Dividends are to be paid out of actual profits.
But since Icahn Enterprises doesn’t have any of those, this is how they attract shareholders.
Now that Ackman is piling on, I expect more hedge funds to short IEP stock. This selling pressure could push the stock down enough for Icahn’s margin calls to start.
I don’t see how Icahn comes back from this unless the businesses Icahn Enterprises owns start making some money.
He doesn’t appear to have enough spare capital to buy more IEP stock and push it up further. And with the stock under so much pressure, I doubt anyone else is buying.
We could be looking at one of the biggest flameouts in Wall Street history. Unless the 87 year old Icahn has one more trick up his sleeve…
Do you think Icahn will go bust? Leave a comment and let us know?
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