Once known as a feared and hated corporate raider, Carl Icahn in recent years has developed a reputation as an activist investor who benefits shareholders and cleans up corporate management.
In the 1980s, Icahn moved his money from company to company, often leaving boards and CEOs alone only after receiving “greenmail” — hefty cash buyouts or other incentives.
Corporate governance and federal regulations have changed, making such payouts much more difficult.
Now, shareholders tend to benefit from the so-called “Icahn lift” that often occurs when stock prices climb after Icahn buys in.
Oklahoma City-based Chesapeake Energy Corp's stock price improved $1.06, or 6.7 percent, in the first three days of trading after Icahn announced he controls a 7.5 percent stake in the company. The stock price slipped $1.32 Friday to close at $15.58, erasing the week's gains.
While shareholders can benefit from Icahn's purchases, the investor himself has made his purpose clear.
“An activist is the same as a raider. You can call it whatever you want,” Icahn said in a 2008 interview with 60 Minutes. “I haven't changed at all. Not one iota. I'm still doing the same thing. I go in and buy a lot of stock in an undervalued company. It helps shareholders a great deal, but I'm not saying, ‘Shareholders, I'm doing a great job for you.'”
Icahn did not return calls for this story.
A team including Oklahoma State University finance professor Ramesh Rao studied Icahn for a 2010 article titled “Is Carl Icahn Good for Long-Term Shareholders? A Case Study in Shareholder Activism.” The article was published in the Journal of Applied Corporate Finance.
The study looked at 33 companies Icahn invested in between 1995 and 2007. It found that the main factor that made a company an Icahn target was a relatively high debt level.
Of the 33 companies studied, 12 ended up being bought out, three were delisted from the stock exchanges and 18 survived as independent, publicly traded firms.
The companies that survived tended to see a stock price lift in the short term, but two years later, shares slipped an average of 60 percent.
In part because of that sharp drop, Icahn has gained a reputation for caring only about the short-term stock price and not about the companies or cities involved.
Rao, however, said it may be unfair to draw that conclusion.
“It may be that once Icahn bails out, it's a signal that the situation is hopeless and even he can't fix it,” Rao said.
In some cases, companies seem to follow Icahn's advice until he sells his stake in the company. Then they return to their previous operations, Rao said.
Icahn and other hedge funds and activist investors often receive too much criticism for their actions, Rao said.
“I'm looking at this as a positive rather than a negative,” Rao said of Icahn's investment in Chesapeake.
“I think to the extent that he brings attention to something that deserves attention, that's good for everyone.”
Icahn has had significant experience within Oklahoma companies. In the past six years, he took an active role in Kerr-McGee Corp. and Chesapeake once before. Those two examples fit Rao's findings on the activist investor's patterns.
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After an independent chairman is named, the board's Nominating Committee will consult with shareholders and carefully review Mr. Icahn's request for board representation.”