Icahn Enterprises Inc.’s bonds saw better buying on Friday, after Carl Icahn’s investing arm announced it was halving its quarterly distribution, a move that disappointed unit holders but is positive for its bonds.
Bondholders are typically focused on making sure a company can make its interest payments and repay the principal when a bond matures.
The company said it would now make a distribution of $1, down from $2 previously. The news came as the company posted a surprise loss for the second quarter and a $1 billion decline in revenue.
Icahn placed the blame for the fund’s poor performance on Hindenburg Research, the short seller that published a report about IEP on May 2, accusing it of overstating asset values. Hindenburg also revealed that Icahn himself had borrowed from the company, among other issues.
The stock promptly tumbled and was last down 24%, putting it on track for its biggest one-day selloff since it went public 36 years ago. The next biggest drop was 20.0% on May 2, when the Hindenburg Research report was released.
As the chart below from data-as-a-service provider BondCliQ Media Services shows buyers emerging after 8:00 a.m. Eastern, immediately after the news was announced. By midmorning, some sellers had emerged.
The following table shows there was net buying over the last 10 days, focused on the 6.35% notes that mature in 2026.
In a letter to unit holders accompanying the results, Icahn acknowledged missteps in the past several years as the company has shifted away from its core activist strategy and shorted far more than was necessary.
“While we made money on the long side through our activism efforts, our returns have been overwhelmed by our overly bearish view of the market and related oversized short (hedge) positions,” Icahn wrote. “Over the past six months, we have significantly reduced our hedges. Going forward, we intend to stick to our knitting and focus on our activist strategy while remaining appropriately hedged.”
Activism is the best investment paradigm because “there is no accountability in Corporate America,” he wrote.
With many exceptions, “most CEOs are incapable of creating great businesses (or even improving them) and the desire to empire build is rampant. “
Many are not the best person for the job or even the most talented individual in the organization, he continued. Far too often, they have climbed through the ranks by being agreeable and presenting no threat to their superiors.
“Those CEOs are generally too busy playing at the proverbial country club to realize what improvements can be made or what hidden jewels can be unlocked,” he said.
CEOs are hard to unseat, as they can pack a board with loyal cronies and use company funds to defend against an activist campaign by hiring expensive legal and financial experts, further depleting the coffers.
Icahn has himself waged endless activist campaigns against companies and their management teams, and most recently succeeded in his effort to shake up management at gene sequencing test maker Illumina Inc. ILMN, +1.83%, as the Associated Press reported.
Past activist campaigns by Icahn’s company have generated billions of dollars for shareholders and helped boards and CEOs capture untapped value, Icahn has argued, citing Reynolds, Netflix NFLX, +0.81%, Forest Labs, Apple AAPL, -3.25%, CVR Energy CVI, +0.23%, Herbalife HLF, -0.16% eBay EBAY, -0.44%, Tropicana, Cheniere LNG, +0.12% and Occidental OXY, +3.30% as examples.