When prompted to cut a deal with Carl Icahn, one has a number of potential responses. Though running full speed in the opposite direction is the most natural reflex, it runs the risk of triggering the former corporate raider's predator instinct. A fetal position might be safer in the short-run, but it does leave one's wallet exposed. An honorable suicide, despite the self-evident drawbacks, is often the best choice.
But as everyone from Atlantic City casino workers to eBay executives the fruit of his own loins can tell you, under no condition should one simply smile and shake Uncle Carl's hand. Evidently, however, no one tipped off Icahn's own educational nonprofit to this fact. As we learned Friday from a WSJ investigation, Icahn just recently repaid a $118.7 million loan he secured from the Foundation for a Greater Opportunity, a nonprofit he set up to advance his humble educational efforts. The negotiation process went like this:
Mr. Fliegel, the charity board member, said the board went along with how Mr. Icahn structured the deal. “No one was going to fight him on it,” he said. “There wasn’t, like, ‘Well, I don’t know if it’s enough money,’ ” he added. The remaining board members either declined to comment or didn’t return calls.
Whatever benefits accrued to Icahn, they certainly were not shared by the organization, which missed out on ten years of market returns in favor of the paltry prime rate Uncle Carl was paying. Even Treasuries would have profited the charity more. But only now are the do-gooder associates of Icahn getting hip to the fact:
Mr. Fliegel said the charity board members thought they were “very smart investors” when they extended the $118.7 million loan to Mr. Icahn. “We’re not as smart as we thought we were,” he said when told the charity could have earned more.
The details of the deal are appropriately complex. Icahn seeded the charity with $100 million in privately held railroad stock back in 1997. As the railroad company prepared to go public in 2006, Icahn returned for his shares, taking out a massive loan from his philanthropic creation to pay for them – a maneuver that required a special sign-off by the state of New York. He ended up extending the loan an extra five years, to 2016. There's no word on the precise tax benefits he enjoyed. Suffice to say we'd be very disappointed if it were in any way modest.