Billionaire investor Carl Icahn took a massive loss Friday as his company, Icahn Enterprises (IEP), slashed its dividend by half. From a new report in Forbes:

Shares of Icahn Enterprises plunged 25% Friday morning after Carl Icahn’s firm cut its quarterly distribution in half, leading to a $1.7 billion drop in the 87-year-old billionaire’s net worth—months after infamous short-seller Hindenburg accused the company of “ponzi-like” behavior.

The Hindenburg Report

In total, Icahn has lost over $6 billion since May, when short seller Hindenburg Research released its report. The report claimed that IEP uses new share sales to fund unsustainable dividends.

But it’s not just Hindenburg that’s nosing around. The US Attorney and the SEC are probing IEP, per a Bloomberg report.

There is no proof that Icahn or IEP has acted improperly and no charges have been filed. But some of IEP’s financial practices seem questionable.

A History of Poor Performance

IEP has made operating losses for years. But continued share sales provide the cash to pay a huge dividend, which props up the stock’s price.

In fact, nearly all recent dividends came from just giving shareholders back their own money. From a report in The Wall Street Journal:

Hindenburg also pointed out that the company has been paying dividends of late through cash on hand rather than investment profits, largely through returning capital to shareholders. Tax documents for Icahn investors after the most recent dividend payment showed that of the $2 payment investors were receiving, $1.80 was a “return of capital.” That bolstered Hindenburg’s argument that the dividend was unsustainable.

Icahn Enterprises Reaches the End of Its Rope

Now that IEP’s stock is falling hard, it may be difficult for them to sell more shares. Without those share sales, they can only keep paying dividends for so long.

I agree with Hindenburg that IEP is likely to cut the dividend further, perhaps to zero. If it does, the stock is likely to crater once again.

IEP in its current form is not a sustainable business. Its operations make losses every year which are papered over with new stock certificates.

IEP must either find a profitable business model or shut down.

What’s Next for Carl Icahn?

Carl Icahn has bought himself some breathing room by working out new terms for his massive personal loans. But much of his net worth remains tied up in the failing IEP.

Add investigations by the US Attorney and SEC, and Icahn could be facing disaster.

What do you think the endgame is for Carl and Icahn Enterprises? Leave a comment and let us know!

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