(CNN) Hindenburg Research, the short-term investor whose reporting on companies omit a large portion of their value, blasted Icahn Enterprises LP (IEP) on Tuesday for its financial reporting, which led to a 20% drop in shares of activist investor Carl Icahn’s company. .
This development presents a rare challenge for Icahn who, as one of the pioneers of shareholder activism, has been accustomed to pandering to companies for their governance and transparency, but has not had to make such criticism himself.
In a report published Tuesday, Hindenburg accused the IIE of overvaluing its holdings and relying on a “Ponzi-like” structure to pay dividends. The subsequent drop in IEP shares erased $2.9 billion from Icahn’s net worth, making him an estimated $14.7 billion, according to Forbes.
Icahn said in the IEP’s statement that the “self-serving” Hindenburg report was intended to generate profits at the expense of long-term IEP shareholders.
“We stand by our public disclosures and believe the IEP’s performance will speak for itself over the long term as always,” said Icahn.
Icahn’s Sunny Isles Beach, Florida-based company owns his various investments in energy, automobiles, food packaging, real estate, and other industries. He is the controlling shareholder of the IEP with an 85% stake.
Hindenburg said that IEP units are overvalued by more than 75% and that “the IEP is trading at a premium of 218% over the last reported net asset value (NAV), significantly higher than all comparable items.”
IEP counterparts on the other hand, such as Dan Loeb’s Third Point Investors Ltd and Bill Ackman’s Pershing Square Holdings Ltd, are trading at a discount on their NAVs, Hindenburg said. NAV is a key measure of a fund’s performance, as it measures the market value of the securities held by the fund.
Driving the IEP’s churn, Hindenburg argued, is its dividend yield of 15.8%, the highest of any large-cap U.S. company to date. Hindenburg accused Icahn of inflating the dividend yield by receiving his dividend in shares rather than cash and having the IEP sell new shares so he could meet shareholder payments.
“Icahn was using the money taken from new investors to pay dividends to the old investors,” Hindenburg said.
Hindenburg also gave examples that she said showed that the IEP itself valued its property well above its market value. IEP listed its 90% stake in meatpacking company Viskase Companies Inc. at a value of $243 million at the end of the year when its market value at the time, based on how its shares traded, was only $89 million, Hindenburg said, citing IEP filings.
Viskase shares are traded as a pink sheet. In a filing, the IEP attributed the rating increase to “market comparisons due to a lack of material turnover.”
In another case, the IEP slated its auto parts division for $381 million in December 2022, one month before a major subsidiary of that division declared bankruptcy.
A representative for Grant Thornton LLP, which has acted as the IEP’s auditor since 2004, declined to comment.
Hindenburg also took aim at the close relationship between investment bank Jefferies Inc. and Icahn. The short seller noted that Jefferies, the only major brokerage that covers an IEP, assumes in its equity research that Icahn’s dividend will pay out forever even in a worst-case scenario, while simultaneously benefiting from an IEP share sales arrangement.
Jefferies did not immediately respond to a request for comment.
A series of big goals
The IEP is the latest high-profile target for Hindenburg, which is run by Nathan Anderson, and earlier this year went after India’s Adani Group, losing more than $100 billion in the conglomerate’s share value. Last month, the short seller targeted a block led by Jack Dorsey. Its previous targets have included electric car maker Nikola Corp.
Icahn, 87, has pushed for changes at a number of companies over the years including Southwest Gas Holdings Inc and Xerox Holdings Corp. In August, fast food giant McDonald’s shuffled its board of directors and replaced the director targeted by Icahn.
Most recently, Icahn was involved in a proxy battle with Illumina Inc to push the American Life Sciences company to abandon its 2021 buyout of Grail.