Icahn Unbound Takes Activism to New Peak in Deal Fights

Carl Icahn never shied away from picking a fight with a company he deemed undervalued or poorly run. In the past two months, he’s taken to meddling in investments put together by others.

At Dell Inc., Icahn is opposing founder Michael Dell and Silver Lake Management LLC’s plan to take the computer maker private. He also bought a major stake in Herbalife Ltd. after rival investor William Ackman said he made a $1 billion bet the stock would fall.

Icahn, who turned 77 last month, no longer manages money for clients. He decided in March 2011 to return their cash, which accounted for about a quarter of his $7 billion in fund assets at the time, citing concerns about the economy and unrest in the Middle East. He ranks 34th on the Bloomberg Billionaires Index, with a net worth of $20 billion.

“He’s the ultimate alpha-male investor, and now that it’s his own capital, he doesn’t have to answer to anyone,” said Brad Balter, head of Boston-based Balter Capital Management LLC, which invests client money in hedge funds.

Icahn hasn’t stopped pursuing his own corporate quarry. He’s trying to get Transocean Ltd. to increase dividend payouts, and in October he won seats on the board of Navistar International Corp. Since the start of the year, he’s also jumped into other investors’ deals.

At Dell, Icahn said the founder’s bid of $24.4 billion, or $13.65 a share, “substantially undervalues” the company.

Proxy Fight

If shareholders reject the deal, he proposes that the Round Rock, Texas-based company pay a special dividend of $9 a share. Icahn says the stock would still be worth $13.81, for a combined value of $22.81. If Dell refuses, Icahn said he’ll start a proxy fight and put up his own board candidates.

“I simply think that Dell is paying too little for the company and I’d like to note that other investors have said that before me,” Icahn said yesterday in a telephone interview.

Icahn has saved his most dramatic battle this year for Ackman, with whom he once waged a seven-year legal dispute over a $4.5 million claim related to his purchase of a stake in Hallwood Realty Partners.

Icahn became the second-largest shareholder of Herbalife within two months of Ackman saying he was shorting the stock because he believes the vitamin seller is running a pyramid scheme. The two investors had it out on television even before Icahn’s stake was disclosed.

“I had dinner with him and I got to tell you I laughed,” Icahn said during the Jan. 25 broadcast on CNBC. “I couldn’t figure out if he was the most sanctimonious guy I ever met in my life or the most arrogant.”

‘Disinvestor’ Ackman

Icahn increased his stake in Cayman Islands-based Herbalife to 15.6 percent from 13.6 percent, according to a filing yesterday with the U.S. Securities and Exchange Commission.

Icahn said his Herbalife purchase doesn’t pit him against another investor.

“Ackman might be called a ‘disinvestor’ because he sold the stock short,” he said. “I bought the stock after he trashed it because I thought it was very cheap.”

Icahn dispelled speculation that he may be behind a recent attack on J.C. Penney Co., the struggling retailer that is 17.8 percent owned by Ackman’s firm.

No Bonds

On Jan. 29, the Plano, Texas-based company got a notice of default from law firm Brown Rudnick LLP, which said it represents investors holding more than 50 percent of some of the retailers’ bonds that come due in 2037. If a court rules in favor of the claim -- which involves a credit line secured by the J.C. Penney’s inventory -- the company could be pushed into involuntary bankruptcy.

Zero Hedge, a financial website, said in a Feb. 4 blog post that Icahn may be behind the action because he’s a major client of Brown Rudnick.

“I don’t own one bond of J.C. Penney and I have no involvement with the default notice,” said Icahn.

His roots as an aggressive investor go back to his days as a corporate raider. He made $893 million trying to break up RJR Nabisco Holdings Corp. in the 1990s. During a takeover battle for Trans World Airlines Inc. in the 1980s, TWA Chairman C.E. Meyer Jr. called him “one of the greediest men on Earth.”

Performance Record

Icahn generated a 53 percent annual return on invested capital from January 1996 to May 2004, according to documents used in 2004 to market his hedge funds to outside clients.

His performance as a hedge-fund manager didn’t match those earlier investment gains, with annual returns of 11 percent before expenses from inception in November 2004 through the end of 2010, according to a regulatory filing. In 2008, when hedge funds lost an average of 20 percent, his dropped 36 percent.

During those years he lost money on cellular-phone maker Motorola Inc. and failed to persuade executives at Yahoo! Inc. and Biogen Idec Inc. to take his advice for raising their stock prices.

Since giving money back to his clients, his performance has picked up. He returned 28 percent gain last year and 35 percent in 2011.

“This is sport,” said Balter. “He’s got time on his hands and money to make.”

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