Icahn Enterprises issued a fulsome response to a short seller Wednesday but net loss in the first quarter and the disclosure of a request for information from the Department of Justice deepened the stock’s rout since Hindenburg Research accused the company of using a “Ponzi-like” economic structure to pay dividends.
Carl Icahn’s publicly traded conglomerate posted the surprise quarterly loss early on Wednesday, when it also said its net asset value (NAV) remained largely unchanged versus the end of 2023 at $5.6 billion.
Icahn Enterprises made the $270-million net loss on revenues of $2.6 billion, versus net income of $323 million and revenues of $4.1 billion in the first three months of 2022.
In Icahn Enterprises’ 10-Q filing Wednesday, the company revealed that the U.S. Attorney’s office contacted it a day after the short report, asking for information on affiliates’ corporate governance, capitalization, securities offerings, dividends, valuation, due diligence, and other materials. The filing states that no claims or allegations were made against the conglomerate or Carl Icahn.
Later on Wednesday, the company published a response to the short attack that started with Carl Icahn saying Hindenburg “would be more aptly named Blitzkrieg Research given its tactics of wantonly destroying property and harming innocent civilians.”
Icahn Enterprises defended its valuation methodologies for assets it owns or controls, saying it used market value, book value, market comparable valuation techniques, or third-party valuation consultants and that it had “several noticeable examples where the sale price ultimately was far in excess of the previously stated NAV.” Capital raises were “not always driven by an immediate need for liquidity, but instead with a long-term view towards maintaining a strong liquidity position and, if appropriate, making distributions to its unitholders,” the statement added.
It also rubbished comparisons with closed-end funds operated by other activists, saying that unlike those funds, Icahn Enterprises did not charge fees.
Nonetheless, the company’s shares closed more than 15% lower at $32.22 in New York.
Last week, short outfit Hindenburg alleged Icahn Enterprises was vastly overvalued and highly leveraged. The company’s shares plunged to their lowest since December 2010 after the allegations, which the company rejected as “intended solely to generate profits on Hindenburg’s short position at the expense of IEP’s long-term unitholders.”
The stock regained some of the lost ground towards the end of the week after Icahn’s company declared a dividend of $2.00 per unit to investors, payable in cash or units.
In its report, Hindenburg estimated Icahn Enterprises’ NAV was close to $4.4 billion and said the company was only able to pay its hefty dividend to investors thanks to what the short seller called a ‘‘Ponzi-like’’ economic structure.
Icahn Enterprises concluded its broadside against Hindenburg by saying that it had $1.9 billion of cash and $4 billion of additional liquidity and would defend the interests of its unitholders “in all appropriate manners.”
After Hindenburg’s attack, former Icahn adversary Bill Ackman took to Twitter in what appeared a bit of a victory lap against the veteran activist investor, who years ago helped squeeze out Ackman from a short position in Herbalife at a loss of nearly $1 billion. ‘‘There is a karmic quality to this short report that reinforces the notion of a circle of life and death. As such, it is a must read,’’ tweeted Ackman, founder of hedge fund Pershing Square, last week.