Carl Icahn speaking at Delivering Alpha in New York on Sept. 13, 2016.
David A. Grogan | CNBC
Icahn Enterprises, Carl Icahn’s conglomerate, saw its stock drop again Wednesday after a disclosure showed federal investigators are seeking information regarding its corporate governance.
The shares fell as much as 20% in morning trading, following a near 25% loss last week. A regulatory filing revealed the U.S. attorney’s office for the Southern District of New York contacted Icahn Enterprises last Wednesday seeking information about corporate governance, capitalization, securities offerings, dividends, valuation, marketing materials, due diligence and other materials.
Investigators sought information a day after notable short seller Hindenburg Research took a short position against Icahn’s company. Hindenburg alleged “inflated” asset valuations last Tuesday, among other reasons, for what it says is an unusually high net asset value premium in shares of the publicly traded holding company.
“The U.S. Attorney’s office has not made any claims or allegations against us or Mr. Icahn with respect to the foregoing inquiry,” Icahn Enterprises said in the 10-Q filing.
In a separate statement, the company called Hindenburg’s report “misleading and self-serving,” saying the Nathan Anderson-led firm used tactics of “wantonly destroying property and harming innocent civilians.”
“Mr. Anderson’s modus operandi is to launch disinformation campaigns to distort companies’ images, damage their reputations and bleed the hard-earned savings of individual investors,” Icahn Enterprises said. “But, unlike many of its victims, we will not stand by idly. We intend to take all appropriate steps to protect our unitholders and fight back.”
Icahn, the most well-known corporate raider in history, made his name after pulling off a hostile takeover of Trans World Airlines in the 1980s, stripping the company of its assets. Most recently, the billionaire investor has engaged in activist investing in McDonald’s and biotech firm Illumina.
Headquartered in Sunny Isles Beach, Florida, Icahn Enterprises is a holding company that invests in myriad businesses including energy, automotive, food packaging, metals and real estate.
Patrick Gadson, co-head of the shareholder activism practice at Vinson & Elkins, said there are a few ways Icahn can fight back and control the damage from here.
“He could use share repurchases or unit repurchases to create a floor in the stock by lowering the outstanding share count,” Gadson told CNBC. “That could be useful in stabilizing the stock price, and it would be painful for the shorts.”
Additionally, Gadson said there could be a high-profile third-party investor who could come out supportive of Icahn, which could also improve investor sentiment.
Icahn said that his firm’s performance has been lower than its historical averages and that’s mainly because of its bearish view on the market.
“We recently have taken steps to reduce the short positions in our hedge book and concentrate for the most part on activism, which has served us so well in the past,” Icahn said. “We believe our existing portfolio has considerable upside potential over the coming years.”
Shares of Icahn Enterprises are now down more than 35% year to date.