Aug. 9 (Bloomberg) -- Carl Icahn's American Real Estate Partners LP bought the billionaire investor's stakes in his own investment-management firm for as much as $1.9 billion to consolidate holdings ranging from home retailers to hedge funds.

The purchase price is $810 million of American Real Estate depositary units plus an additional payout of as much as $1.1 billion based on meeting financial targets. Icahn's management companies had about $3.5 billion in average assets under management during the 12 months through June, New York-based American Real Estate said today in a statement. Shares of American Real Estate jumped 14 percent, the most in nine years.

The transaction will enable Icahn, who owns 89.9 percent of American Real Estate, to bring together a holding company with investments in property and home-fashion stores with his activist hedge funds, which earned $320 million in fees in the past year. His Icahn Funds has increased the amount of committed capital sevenfold to $7 billion during the past three years.

``We intend to provide capital to grow our management companies, grow our existing businesses and make further acquisitions,'' Icahn said in the statement.

Shares of American Real Estate rose $12.40 to $99.65 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest gain since Nov. 16, 1998. The stock has increased 16 percent this year, compared with the 2.5 percent advance in the Standard & Poor's 500 Index.

Avoiding Fees

American Real Estate also plans to acquire about $700 million of limited partnership interests in the funds, allowing Icahn to forgo paying a 2.5 percent annual management fee and 25 percent of any profits.

As part of today's transaction, Icahn agreed to a five-year employment contract to serve as chairman of American Real Estate and chief executive officer of the Icahn Management Entities. Icahn, whose personal fortune is estimated at $13 billion by Forbes Magazine, will get a salary of $900,000 plus a bonus based on achieving certain financial targets.

Icahn built his reputation in the 1980s as a corporate raider, targeting big companies including Phillips Petroleum Co., Texaco Inc. and Trans World Airlines Inc. As an activist investor who uses his position as a shareholder to press management for changes, Icahn has tried to break up Time Warner Inc. and started a proxy fight at Motorola Inc., demanding the mobile-phone maker return more cash to investors.

As part of the transaction, American Real Estate will change its name to Icahn Enterprises LP.

To contact the reporters on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net; Alan Mirabella in New York at amirabella@bloomberg.net.

Last Updated: August 9, 2007 16:37 EDT