Rosalind Evans
The stock of Icahn Enterprises LP (IEP), the investment arm of Carl Icahn, dipped by 0.7% after Hindenburg Research, a well-known short seller, increased its bearish position on the company. Hindenburg Research, led by Nate Anderson, has started scrutinizing the company’s bonds following its critique of Icahn’s personal margin loans and IEP’s portfolio losses.
Hindenburg’s latest comments stem from IEP’s disclosures, which the short seller claims fail to address the issues it highlighted in a report on May 2. The report had earlier questioned IEP’s asset valuations and Icahn’s borrowing from the company using his units as collateral.
Hindenburg Research, known for its profits from the falling share prices of companies it criticizes, initiated a bet against Icahn Enterprises earlier this month and shifted its focus to its debt. The short seller noted the need for more transparency regarding Icahn’s margin loans, including loan-to-value (LTV) ratios, maintenance thresholds, principal amount, and interest rates.
IEP has not clarified why Icahn borrowed against his holdings, and the company did not respond.
IEP announced a federal investigation into its corporate governance and other matters, adding more pressure to the stock. Whether this probe by the Southern District of New York is linked to Hindenburg’s allegations remains uncertain.
IEP’s bonds, particularly active since Hindenburg’s first report, dropped further as Hindenburg announced a short position on them. The longest-dated bonds, the 4.375% notes due in February 2029, were trading at approximately 75 cents on the dollar.
He pledged more than 181 million units using margin loans for 60% of his holdings, according to a 2022 filing with the Securities and Exchange Commission. IEP stated that this pledge had risen to 202 million units, valued at an estimated $6.5 billion, according to Hindenburg.
The ongoing tussle between the renowned activist investor and Hindenburg Research has battered IEP’s stock, which has plunged 39% in the month, eroding more than $6 billion of its market cap.
IEP reported a surprising loss of $270 million, or 75 cents per depositary unit, for Q1, following an income of $323 million, or $1.06 a unit, in the same period last year. This was contrary to the FactSet consensus predicting an income of 19 cents.
The company’s revenue dropped from $2.968 billion to $2.758 billion yearly, though it surpassed the FactSet consensus of $2.559 billion. During a conference call, analysts did not question executives who briefly summarized the quarterly figures.
In response to Hindenburg’s May 2 report, IEP vowed to “take all appropriate measures to protect our unit holders and fight back.” Icahn admitted the investment segment’s recent underperformance, attributed to its bearish market outlook and large net short position, which it has since reduced.
IEP offers investors access to Icahn’s portfolio of public and private companies, ranging from petroleum refineries and car parts makers to food-packaging companies and real estate. Icahn noted that the market-cap loss caused by Hindenburg’s report has significantly impacted the company’s predominantly individual investors.
Hindenburg Research’s scrutiny of Icahn Enterprises LP (IEP) weighs heavily on the company’s financial outlook. Notably, the short seller focuses on the company’s stock and its bonds, indicating a wide bearish stance on all aspects of its financial structure.
The company has been defensive since Hindenburg’s May 2 report, which raised serious concerns about Icahn’s personal margin loans and the valuation of IEP’s assets. The disclosure of a federal investigation into IEP’s corporate governance has added to the company’s woes, causing additional pressure on the stock.
Despite IEP’s efforts to counter Hindenburg’s claims, the market has reacted negatively, significantly impacting the company’s share price and bond values. The company’s stock has dropped 39% in the month to date, and the bonds, particularly the 4.375% notes due in February 2029, have also suffered, trading at approximately 75 cents on the dollar.
Earlier this year, Carl Icahn, the majority owner of IEP shares, disclosed in a Securities and Exchange Commission filing that over 181 million units, or 60% of his holdings, had been pledged for margin loans. According to Hindenburg Research, this pledge has now increased to 202 million units, estimated to be worth $6.5 billion.
The escalating dispute between Hindenburg and Icahn Enterprises has significantly impacted the company’s market cap, leading to a loss of more than $6 billion. This has disproportionately affected individual investors, who comprise most of IEP’s unit holders.
The Q1 financials showed an unexpected loss for IEP, with a drop in revenue compared to the same period last year, despite beating the FactSet consensus. As Icahn admitted to the investment segment’s underperformance, he blamed the bearish market view and the significant net short position, which has now been scaled back.
Icahn Enterprises continues to pledge to protect its unit holders and fight against Hindenburg’s allegations. However, the market’s response to this battle and its impact on the company’s financial health will be closely watched in the coming weeks.
