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.
In February 2005, Icahn announced his intention to buy up to $1 billion of shares in Kerr-McGee Corp. Seventeen months later, Kerr-McGee management agreed to sell the company to Houston-based Anadarko Petroleum Corp. for $18 billion.
Icahn's previous experience with Chesapeake was much more positive for the company, its employees and Oklahoma City.
The company continued its rapid expansion — both in the number of employees and the number of buildings on its north Oklahoma City campus — during and after Icahn's investment.
In December 2010, Icahn reported a 5.8 percent stake in the Oklahoma City
The stock price peaked at $35.61 in February 2011. A few weeks later, Icahn sold at least enough shares to drop below a 5 percent stake, pocketing about $500 million in the process.
Two years later, however, the company's stock price has tumbled 56 percent.
Icahn's first experience with Chesapeake was amicable, at least publicly. Chesapeake management worked with Icahn and agreed to sell down debt.
This time around, however, things appear more confrontational.
Icahn has called for the company to replace four of its board members with new directors selected by Icahn and other large shareholders.
“In our opinion, only when these changes are effectuated will the board be truly independent and more importantly will investors come to believe that promises made will be promises kept,” Icahn stated in his letter to the company and its shareholders.
Icahn blamed Chesapeake management for the stock price fall over the past two years, saying the company did not follow through on his recommendations.
“Without shareholder representatives on the board (a major concern for us at the time) the promises made in 2010 proved hollow, and the company quickly abandoned their new strategy and not only accelerated land acquisitions but also capital spending on noncore assets,” Icahn stated in the letter.
Icahn ended the letter by saying that he and his associates want only “the best for this great company.”
“Therefore, if you continue to arbitrarily refuse the request we have made for shareholder representation, we, as activists, will immediately take whatever ‘actions' we feel are necessary to protect the value of this company,” Icahn stated.
In a statement, Chesapeake said it will carefully review Icahn's letter.
“We share Mr. Icahn's belief that Chesapeake shares are substantially undervalued by the market today,” the statement said.
“The board and senior management are executing a plan that we believe will deliver a higher stock price and better recognize the underlying value of the company's assets.”
The board said its immediate priority is finding a nonexecutive chairman to replace McClendon, who will remain as CEO.
“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,” Chesapeake said.
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.”