Are you not bored by corporate-raider battles? Netflix just adopted a poison pill in reaction to Carl Icahn’s acquisition of 9.98% of its stock and, of course it did, what else would it do? Just once I want to see a company say “actually you’re right, we’re hopeless, let’s sell this dog, highest bidder wins, and Icahn if you can come up with the money feel free to do a tender offer to save us the trouble”? I guess it’s no surprise that no one does – if you’re an activist or raider, you only get involved in stocks that (you think) need action and/or raiding and whose managements disagree – but, still. It’s not obvious that there are two sides to every corporate strategy question, and lots of companies that end up selling start off with the traditional pill-rattling.1
There are issues of temperament here; I suppose a 10% Warren Buffett stake would elicit a different response. Normally pills are justified as protecting vulnerable, innocent, long-term shareholders from being bamboozled and coerced by evil fast-money short-term corporate raiders, but are mostly viewed as bad governance by entrenched managements, as Icahn himself quickly noted. There’s, like, one example this century2 of shareholders actually being bamboozled and coerced by corporate raiders. Conveniently, though, that example was when Icahn acquired 80% of CVR Energy and then was kind of a jerk to the remaining shareholders, which allowed lots of other boards to feel better about their own anti-Icahn poison pills.3
Anyway some things will happen and other things won’t happen and eventually Carl Icahn won’t own any NFLX shares any more and your guess about his manner and price of exit is way, way better than mine. Let’s talk about something else and dorkier here.4 Read more »
If I were the sort of guy who could come in to a company, yell at them a bunch, and get them to sell themselves to someone else at a premium, I would:
- do that often!, and
- buy lots of call options on the stock before doing it.
Right? If I bought the call options for, I dunno, $23 an option, and they had a strike price of $36 per option, let’s say, and I bought 5 million of them, and the company eventually sold itself for like $80, then I’d be stumping up like $115 million initially and getting back $220 million for a profit of $105 million, or ~91% of my original investment, and that would be sweet. If instead I boringly bought shares at, say, $59 per share, and it eventually sold for $80, then I’d be putting down ~$295 million to get back ~$400mm for only a ~36% profit. More importantly if somehow I failed to convince this company to sell itself, or even worse if I failed to convince others to buy it, the stock might go lower – maybe really low. If the stock went to $20, I’d lose my entire $115mm option premium, but that’s better than losing $195mm if I’d gone and bought the stock.
In other words, putting a company into play increases its volatility. Options gain value with volatility. Buying an option and then making it more valuable through your own actions – going out and making volatility happen – is a good strategy. So good it’s basically magic.
So good it’s impossible! Because: what kind of idiot would sell you that option?
Let’s ask Carl Icahn. Today he announced a just-under-10% position in Netflix this afternoon. The stock closed up ~14% (after being up ~21% earlier) on the news. And as it happens, Icahn’s Netflix position was almost entirely in the form of call options, so he just made a bajillionty dollars on paper.
Here is what Icahn says about those arrangements:1 Read more »
Increasingly, restaurants are recording whether you are a regular, a first-timer, someone who lives close by or a friend of the owner or manager. They archive where you like to sit, when you will celebrate a special occasion and whether you prefer your butter soft or hard, Pepsi over Coca-Cola or sparkling over still water. In many cases, they can trace your past performance as a diner; how much you ordered, tipped and whether you were a “camper” who lingered at the table long after dessert…Much of this information is discreetly embedded in an alphabet soup of acronyms that pops up on the computer screen when a restaurant employee checks you in, managers and employees at a number of high-end New York restaurants said in interviews. The wine whale may show up as WW. If a free appetizer lands on your table at Osteria Morini in SoHo, chances are your file says SFN — something for nothing…At Marea, Michael White’s Italian restaurant on Central Park South, for instance, the hedge fund manager William A. Ackman is a regular and one of many customers who rates an NR, never refuse. What the computer does not say (but the general manager, Rocky Cirino, knows) is that servers can never seat Mr. Ackman next to Carl C. Icahn, another big Wall Street name. The two have sued each other. [NYT]
I remain fascinated by this Carl Icahn – CVR Energy situation and wanted to add two curlicues to my conspiracy theory for why he dropped his bid.
First: while it’s fun to think that he may be unable to pay above $30 for a CVR merger due to let’s say imperfections in his tender offer documentation, there’s another, more broadly applicable, reason not to go above $30. That is: Carl Icahn is a repeat player. He bids for companies sometimes. And if you make a habit of (1) buying 80% of a company in a tender offer for $30 and (2) buying the remaining 20% in a merger a few months later for $31, then you may find it harder to get anyone to tender in your tender offer. Why not hold out for more?, they think, plausibly.
Thus it’s actually a very good idea for Icahn to be a raging asshole to the remaining 20% stub:* the worse he treats them, the more likely the shareholders of his next target are to tender. The holdouts in this deal gambled and lost and are now holding an illiquid stub that they may well end up selling to him on the open market for less than his tender price. Any potential holdouts in his next deal should be quaking in their hypothetical boots.
This only goes so far, though, because the more of a raging asshole you are, the more boards can do to keep you out of the next deal. A guy well known as a defender of shareholder rights against entrenched management tends to be able to put a lot more PR – and legal – pressure on boards than a guy well known for taking advantage of minority shareholders. And Delaware courts at least pay lip service to the idea that boards have more leeway to keep out – via poison pills, etc. – raiders who “coerce” shareholders than those who don’t (see, e.g., etc.).
So Icahn is in a weird position. Read more »
Carl Icahn’s strangely halfhearted takeover of CVR Energy got even stranger and more halfhearted last night: after acquiring an 82% stake at $30 in a tender offer, and suggesting to the board that they think about selling him the rest of the company at $29, he withdrew that suggestion last night. He gets sort of a sad trombone for this letter:
At the time we made our original offer on August 6th to take CVR Energy private, we stated that we were willing to pay $29.00 per share but in no event would we consider paying more than $30 per share. Since then a number of market conditions have changed, including a significant widening of crack spreads. We no longer think that the proposed transaction is feasible at this time and we hereby withdraw it.
Some background is here.** So this is a neat letter because it sort of sounds like “we no longer think CVR is worth that price” but it surely means “we are not willing to pay the higher price that CVR is now worth and likely to demand” – doesn’t it? Here are CVR’s comps since August 6th:***
Wider crack spreads + the sector trading up = if CVR was worth $29 two weeks ago it’s worth, what, $31 today?**** Or, I mean, you can imagine CVR’s board saying so: “if you were willing to pay $29 two weeks ago why not pay $31 today?” – but it’s weird for Icahn to negotiate himself right out of the deal.
So why did he? Read more »
Ten years ago, Carl Icahn hired his son Brett to be an analyst at Icahn Enterprises and the kid didn’t fuck anything up so he got to keep his job. Two year ago, Carl gave Brett and another employee, David Schechter, $300 million to invest under the “Sargon portfolio,” and the guys returned 96 percent (before fees) through June. Last month, Carl tossed the duo an additional $3 billion and a contract that expires in 2016, at which time Papa Icahn will either officially deem Brett a worthy successor or offer to serve as a reference when he looks for a new job. Read more »
And so he’s not paying them on principle, the principle being I suppose “don’t fuck with Carl Icahn”:
Carl Icahn says he isn’t paying a bill from Goldman Sachs Group Inc., on principle. … “These guys were hired to keep me from buying the company at $30 and they failed,” Mr. Icahn said in an interview. “But they are now demanding $18 million for having done nothing.”
Goldman’s suit says the bank “fully performed all of its obligations.”
This is about Goldman’s lawsuit against Icahn-controlled CVR Energy, which has refused to pay Goldman’s bill, and both of these statements are obviously true! CVR and Goldman signed an engagement letter to the effect of (1) Goldman will hold CVR’s collective hand because it is scared of Carl Icahn and in exchange (2) CVR will pay Goldman 0.525% of the purchase price if someone buys it (and also some money if no one does*). Hands were held, so Goldman fulfilled its end of the bargain. Icahn does not think that that was worth eighteen million dollars but it wasn’t him trembling in the night as corporate raiders circled outside his door, so he wouldn’t would he? Read more »
Sell-side M&A work is mostly a pretty good and lucrative business model but it has a few flaws. Try to spot a key one here:
(1) you represent a target;
(2) you spend your days fighting tooth and nail with the buyer to try to make them pay more and give up optionality, and generally to get more of the benefits of the deal for the target than for the buyer;
(3) then the buyer acquires the target, fires all the directors and officers, changes the locks, and replaces the stationery;
(4) then you get paid.
Did you spot the problem? Carl Icahn did: Read more »
If you want to buy a company you can do it in one of two ways: you can negotiate a merger with the board, put it to a shareholder vote, and if you get above 50% then all the other shareholders are basically forced into the deal and you pay the merger price. Or you can buy shares, typically in a tender offer, and if you get above 50% then you … sort of own the company. But not exactly, because there are still other people who own 49%. And, generally speaking, those other people don’t like you.
Today some of those other people are suing Carl Icahn because (1) he owns about 80% of independent refiner CVR Energy, (2) they own about 20%, and (3) he is being kind of mean to them. Specifically, after tendering for the company and buying most of the shares at $30, he’s been taking advantage of the fact that no one really wants to be a minority shareholder in a controlled company by buying more shares at around $27.50.*
Some of those minority shareholders want to stop him doing this, claiming that “Once any genuinely independent board of directors learned of Icahn’s scheme, such a board would have adopted a poison pill to stop Icahn from making any more open market purchases unless and until the Board was able to negotiate a cash-out merger that provided the Company’s remaining shareholders with fair value.” And so they’re suing to force Icahn’s board to adopt a poison pill and prevent him from buying at market prices. That is strange: Read more »
“You know who I can relate to? I’m nothing like Alexander the Great and I don’t want it to be misconstrued that way, but I was reading his biography and I can relate to one aspect about the guy. He could have stayed in Persia and had a nice life. Instead, he went off and fought a new fight. That’s how I can relate. I don’t like just sitting there. I enjoy the hunt much more than the “good life” after the victory.” [BreakingViews via BI]
In 2010, the 10 best paid hedge fund managers made a combined $17.53 billion. To score a place on the list, you had to earn at least $440 million. 2011? The group took home a collective pool of $10.15 billion (down 42 percent) and a mere $210 million got you access to the VIP lounge. So, lots to reflect on today re: how game can be upped this year, whether it’s by coming into work and acting like you actually want it, increasing fees to 5&75, or passing the on the burden of staff salaries to investors. Something else to think about? The fact that Uncle Jim Simons beat all you fools for a second place finish and technically doesn’t even have a job. (Bridgewater Mentor Ray Dalio also did okay for himself.) Read more »