Have you had enough Icahn and Ackman and Herbalife yet? Probably, right? Still, I should mention two more things, mostly because I kind of got them wrong this morning.

The first thing is that I thought Icahn is long via options, rather than shares, for financing reasons. He sometimes uses this method to avoid HSR antitrust filing requirements, but here he actually did the filing and waited the thirty days to buy more shares. But in fact there are a number of thresholds that require pre-acquisition filing; Icahn seems to have waited to cross the $70-ish million threshold in physical shares, but he’s now re-filed to get permission to take physical possession of the full ~$500-ish million that he currently owns synthetically. (And more, potentially.) Icahn said on CNBC this afternoon that he’s planning to convert into physical shares as soon as he gets that approval.1 If true, that suggests relatively little focus on leverage and cheap financing, and relatively significant focus on short squeezing and fucking with stock borrow. So that’s exciting for everyone.

Second: I said this morning that one option that might be appealing for Icahn would be to take profits on his position by dumping some of the stock after this morning’s run-up.2 Nope! Not appealing! Terrible idea! Don’t do it Carl!3 Read more »

  • 05 Nov 2012 at 1:09 PM

What Does Netflix’s Poison Pill Do To Carl Icahn?

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 »

  • 12 Jul 2012 at 5:30 PM

Mitt Romney, Bill Ackman Undone By Forms

Let’s talk about two tenuously related stories about government filings, why not. I don’t have much to say about this Mitt Romney Bain thing today but go read it, it is fascinating. Basically Mitt Romney certified under penalty of perjury in some federal electoral forms* that he was not involved with Bain Capital after 1999, and he also certified under penalty of perjury in some SEC forms that he was CEO of Bain Capital from 1999 to 2002, so by the fallacy of the excluded middle (?) he is definitely guilty of a federal felony,** which sounds terrible until you realize that so is everyone else, really, because breathing air is a federal felony, but this is a different obsession of mine.

Anyway Dan Primack is defending Romney and basically saying “being the CEO of some old fund for SEC filing purposes is not the same thing as actually running a private equity firm, and you can tell from the fund marketing documents that he wasn’t actually running it,” which I suspect is roughly correct as a matter of his working life, and as a matter of acquitting him of felonies, though also not entirely politically palatable – “when I said I wasn’t involved with Bain Capital after 1999, I meant except for being CEO,” etc. etc.

Moving on quickly to the other piece of federal filing arcana: Bill Ackman is buying some P&G stock so he can sell shampoo at Burger King or something. Buy! Or sell! Or something. But the weird thing to me was: how often do you see a story that is like “activist investor is granted early termination on HSR filing”? Is “never” the right answer? Maybe? Read more »