Billionaire Carl Icahn's Campaigns

Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Billionaire activist investor Carl Icahn is a famous corporate raider, and he's running a number of high-profile campaigns all at one time. With personal wealth of some $17 billion, Icahn has plenty of capital to throw around. Icahn believes that "consensus thinking is generally wrong; if you go with a trend, the momentum always falls apart on you, so I buy companies that are not glamorous and usually out of favor." Outlined below are are few of Icahn's biggest activist campaigns (see Icahn's top picks).
 
Oil and gas
 
Icahn's campaign at Dell is at the forefront of the news, but Icahn has a major campaign at Chesapeake Energy (NYSE: CHK), which makes up 7.19% of Icahn's portfolio and is his third largest holding. Chesapeake is an independent oil and gas company, with a focus on the production of onshore U.S. natural gas resources. The company is now the second largest natural gas producer in the U.S.
 
Icahn has been pushing Chesapeake to capitalize on its extensive inventory of undeveloped acreage. Other big news is that Chesapeake has named a successor to CEO Aubrey McClendon. A top executive from Anadarko Petroleum will take over for McClendon in mid-June.
 
Some of the big positives I see for the stock include a shift toward higher liquids volumes, with 85% of total 2013 CapEx expected to be deployed to drill liquid-rich plays. Chesapeake's high profile Eagle Ford shale play also has a production profile of 66% oil and 15% natural gas liquids. 
 
The overhang is that the company has high debt levels that are straining liquidity. The other big positive is that the company has been disposing of non-core assets to help close the funding gap. Southeastern Asset Management is not only alongside Icahn in the activist campaign at Dell; it's also one of Chesapeake's big investors (see Southeastern's top picks). 
 
Streaming profits
 
Icahn's fifth-largest holding is Netflix (NASDAQ: NFLX), making up 6.19% of the fund's portfolio. Netflix is being driven higher by a growing subscriber base. The content streaming company is up a whooping 600% over the past five years.
 
Netflix managed to add over 2 million U.S. streaming video subscribers during the first quarter, which put its total subscriber base to 29.17 million - up from 23.4 million a year ago. Its international customer base is also up to 7.14 million, up from 3.07 million a year ago. 

Going forward, Netflix should see further subscriber growth thanks to applications on Android and Apple devices. The other big initiative that Netflix will soon launch is an $11.99 monthly plan targeted at large families, which will allow subscribers to stream TV shows and movies on up to four devices simultaneously.

Going into the second quarter, there was a total of 48 hedge funds long Netflix, a 37% increase from the previous quarter. Icahn was the largest hedge fund owner with a $1 billion position, while Philippe Laffont of Coatue Management was in second (see Coatue's small cap picks).

Drilling for dividends

Another one of Icahn's recent campaigns is Transocean (NYSE: RIG), in which Icahn's share count increased 245% during the first quarter. Transocean is now Icahn's sixth-largest holding, making up 6.18% of his portfolio. Transocean is the world's largest offshore drilling contractor and a top provider of drilling management services.
 
Transocean has six ultra-deepwater drillships and two high-specification jackups under construction. The trend toward more offshore drilling should continue as companies look to drill even deeper to find reserves. Transocean also has a large presence in jack-up rigs and its total backlog is over $28 billion. The Deepwater Horizon incident continues to loom over the stock, but the recent settlement with the U.S. government has freed up some of the civil and criminal claims associated with the accident. 
 
Management did propose a $2.24 per share annual dividend yield, but Icahn's push for a  $4 per share dividend would make for a 7.9% yield at the current share price. The Icahn deal would be a $1.4 billion payout, compared to the $6 billion in cash the company has on the books.
 
Pyramid scheme?
 
Finally, Herbalife (NYSE: HLF) was a new addition to the Icahn portfolio during the first quarter. Herbalife is a marketing company that offers weight management and nutritional products. It is now Icahn's seventh-largest holding, and it accounts for 3.6% of his portfolio.
 
Herbalife found itself in the middle of a dog fight between billionaire Bill Ackman and Icahn earlier this year, when Ackman came out and called the company a pyramid scheme
 
Herbalife continues to be a sales-generating machine, posting some $4.1 billion in revenue in 2012, of which $3.5 billion was product sales. As far as the revenue breakdown, Herbalife's powerhouses are Asia Pacific and North America, accounting for 28% and 20.7% of sales, respectively. 

The company got a nice 8% boost in sales in one day earlier this year thanks to the appointment of PwC as its new auditor. Herbalife saw KPMG step down as its auditor after an insider-trading scandal by one of its partners. Nonetheless, Herbalife still has over 32% short interest. 

The bottom line

Billionaire Carl Icahn is battling a number of companies to unlock shareholder value, and in the case with Herbalife, fending off other activist investors.
 
I believe that the steps Chesapeake is taking are a long-term positive, with the company looking to move toward monetizing its vast asset base. Icahn's Netflix investment appears to be a bit rich at current valuation levels; therefore, I would wait for a pullback in the stock. As for Transocean, I believe the brouhaha from the Deepwater incident is overstated and the stock has been oversold. The ultimate fallout from the Ackman-Icahn Herbalife battle remains to be seen. I'd rather stay on the sidelines for now. 
 
 

Energy investors would be hard-pressed to find another company trading at a deeper discount than Chesapeake Energy. Its share price depreciated after negative news surfaced concerning the company's management and spiraling debt picture. While the debt issues still persist, giant steps have been taken to help mitigate the problems. To learn more about Chesapeake and its enormous potential, you're invited to check out The Motley Fool's brand-new premium report on the company. Simply click here now to access your copy.


Marshall Hargrave owns shares of Chesapeake Energy. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix and Transocean and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, Short Jan 2014 $15 Puts on Chesapeake Energy, and Long Jan 2014 $50 Calls on Herbalife Ltd.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus