Icahn Reloads His War Chest

The A-list dealmaker clears another $1 billion by cashing out of Las Vegas, and says he has $4 billion ready to invest. Where to next?

An old Wall Street axiom claims that it's always smart to invest along with the guy who runs the business. That seems to count double when the business is American Real Estate Partners (ACP) and the owner is billionaire dealmaker Carl Icahn, who controls a 90% stake in the New York-based holding company. Make no mistake, this isn't a company that makes widgets or services the consumer. It makes money the old-fashioned way, by buying low and selling high, all at the whim of a 71-year-old corporate raider (see BusinessWeek.com, 4/1/07, "Motorola: Cut Icahn’s Interference").

On Apr. 23, the company struck again, selling four humdrum Las Vegas casinos it owns for a steep $1.3 billion to Whitehall Street Real Estate Funds, an affiliate of Goldman Sachs (GS). Icahn's company will realize a $1 billion gain, or 76% on a bunch of investments the company started making in 1998 when it bought the debt for the bankrupt Stratosphere Hotel & Casino. The latest deal comes only two weeks after American Real Estate Partners (AREP) closed the last of several deals to sell its oil and gas properties for $1.5 billion, realizing a $600 million profit, the company says, on investments that it made two years ago.

Wise Investments

With the twin sales, Icahn says he now has "in excess of $4 billion of liquidity to continue to invest in undervalued assets." In other words, check the Internet for news of where Icahn, one of America's shrewdest investors, will turn up next. The game plan is to find out-of-favor investments—his Vegas casinos were mostly second-tier locales for locals, not the glitzy joints on the Strip—and wait until the rest of the world catches on. That's why he bought oil and natural gas fields before the recent sprint upward in oil prices, and why he is getting out of gaming just as it's hitting its, er, stratosphere (gaming revenues on the Strip hit a record $6.7 billion last year).

And Icahn is on a winning streak, even if it isn't on AREP's nickel. His company's Nevada property sales came the same day Icahn cleared just over $300 million for a stake his hedge funds have taken in MedImmune (MEDI), the vaccine maker in which he acquired a stake this year for about $89 million. European pharmaceutical giant AstraZeneca (AZN) is buying MedImmune for about $15.6 billion—a sale spurred in part by Icahn's recent pressure.

Best Bets

So where next? The auto industry, for starters. Even before the current bidding began to buy Chrysler Group from DaimlerChrysler (DCX), Icahn had jumped into the dowdy business of making cars. AREP agreed on Feb. 9 to acquire Lear (LEA), a leading maker of automotive interior systems, for $5.2 billion, including debt. (That deal hasn't yet been approved by Lear shareholders.) AREP also owns 37 rental real estate properties with a book value of $136.2 million that it says it "continues to evaluate…with the view of selling assets at favorable prices."

The best bet might be to simply bet along with the guy who knows where he intends to take the company. And those who got in early—before he made his energy killing—have already reaped the benefit. Since 2005, in fact, AREP's stock price has jumped from $26 a share to its current $107.95, and has gained 78% in just the past six months. The stock, of course, doesn't have much of a float, since Icahn himself holds such a large block. Then again, maybe that's the best thing it has going for it.

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