Icahn Enterprises LP shares plummeted after Hindenburg Research targeted the company in a short call, alleging overpricing and inflated asset valuations. Hindenburg claimed that Carl Icahn, a legendary Wall Street investor, had made the classic mistake of taking on too much leverage amidst sustained losses. Icahn Enterprises' shares dropped by up to 24% following the report, marking the biggest intraday fall since March 2010.
Hindenburg's report states that Icahn Enterprises' value is inflated by at least 75%, pointing out that it trades at a premium of over 200% to its net asset value (NAV). In contrast, other closed-end holding companies, such as Dan Loeb's Third Point and Bill Ackman's Pershing Square, trade at discounts to their NAV. The report also questions Icahn Enterprises' dividend yield size and its financing methods in recent years.
According to Hindenburg, Icahn has been using funds from new investors to pay dividends to older investors, which it likens to a Ponzi scheme. Such economic structures can only be sustained as long as new investors are willing to risk being the last ones holding the bag. Hindenburg Research has gained prominence in recent times, particularly after its January report on Gautam Adani's business empire, which led to a plunge in stocks and bonds across the conglomerate.
Carl Icahn has a long history of clashing with investors and corporate executives with whom he disagrees. He has had disputes with activist hedge-fund manager Bill Ackman over Herbalife Ltd., and with BlackRock Inc. CEO Larry Fink. More recently, Icahn has been at odds with Illumina Inc., criticizing the DNA-sequencing company's board for pursuing the acquisition of Grail Inc. despite objections from antitrust regulators.
