Decades ago, Carl Icahn gained insight from reading American novelist Theodore Dreiser. The billionaire investor immersed himself in two of Dreiser’s novels, financier And Titanwhich chronicles the rise of industrialist Frank Cowperwood.
In a crucial financial standoff, Cowperwood’s opponents plan a bank call into his large personal debt. Unbeknownst to them, however, is that Cowperwood possesses a large reserve of “drawable and mortgageable” assets. If it is published, Dreiser writes, “these men must finally see how strong it is and how safe it is.” Cowperwood prevails and Icahn says he’s learned an essential lesson: Always have a “war chest” of money.
The 87-year-old is best known for his decades spent orchestrating shareholder fights with companies such as Texaco, Trans World Airlines, Apple and McDonald’s. These battles reshaped American financial markets by changing the way companies are run, and directing their management towards the interests of major shareholders such as Icahn.
For nearly half a century, the mere mention of his name struck fear into the hearts of corporate leaders and moving markets. But a lot of Icahn’s power stemmed from an obscure, poorly traded generic called Icahn Enterprises that went largely unexamined.
This month, Icahn was cornered by a skeptic named Nathan Anderson, who, in a report published by his firm Hindenburg Research, revealed heavy debts the investor had taken on for his shares in Icahn Enterprises. The revelation exposed a surprising weakness in one of the world’s richest financiers. Icahn vows to “fight back,” but his plans for securing his empire remain mostly vague.
In recent years, Icahn has made ever bigger bets against a rapidly rising market to protect its investment from future collapse. Instead of building an emergency reserve, the deals resulted in an estimated $9 billion in losses. Faced with those losses last week, the cautious Icahn admitted: “I may have been wrong not to stick to my own advice in recent years.”
The impasse has shocked many prominent figures on Wall Street. “It’s one of those moments in a crisis where you go, ‘Oh my God, everything I’ve been thinking about someone has been wrong,'” said the head of a large financial firm.
Bill Ackman, the billionaire investor with whom Icahn grappled in a legendary battle over the fate of a multi-level marketing firm, offered the most brutal assessment. “Wall Street’s favorite Icahn says (him): If you want a friend, get a dog,” Ackman wrote on Twitter. “Over the course of his career, Icahn has made many enemies. I don’t know he has real friends. He could use one here.”
Born to schoolteachers in 1936, Icahn grew up in the New York working-class neighborhood of Far Rockaway, Queens. After graduating from a local public high school, he earned a degree in Philosophy from Princeton University and supported himself using his poker winnings.
He briefly attended medical school, but dropped out and joined the army before settling down as a stockbroker. In the late 1960s, Icahn’s purchase of a seat on the New York Stock Exchange was financed by a wealthy uncle, where he became a specialist in “risk arbitrage”, making bets on prospective corporate mergers.
Icahn entered the public consciousness in the 1980s when he took control of Trans World Airlines using financing from junk bond king Michael Milken. He ruthlessly sold TWA assets for cash, fought unions, and earned a reputation as a “corporate raider.” The episode helped inspire the character of Gordon Gekko in the film wall street.
In recent years, Icahn, who divorced his first wife and married his assistant Gail, moved his company from a skyscraper overlooking Manhattan’s Central Park to Miami. He also worked closely with his adult children, Brett and Michelle.
He helped Brett make successful bets on Apple and Netflix and was chosen as his father’s eventual successor. Michelle’s work for the Humane Society inspired Icahn to run an unsuccessful campaign against McDonald’s for its treatment of livestock.
The attack on Icahn comes as he continues to battle companies he believes are poorly managed. On Thursday, he tied the knot in a war against Illumina, which makes machines for sequencing the human genome. Icahn accused Illumina’s management of striking reckless takeovers and told its shareholders to give his nominees three seats on the board. He was able to remove Illumina’s chair, but failed to win the other two seats, which would have helped him unseat its CEO. The result confirms his enduring influence. But he is in uncharted territory.
This week, Icahn Enterprises fell more than 30 percent, adding to a rout that has slashed the company’s value by more than half. It has cost Icahn billions and made the threat of a “margin call” from its lenders even more urgent.
Whether he can prevail may come down to the lesson he says he learned from Dreiser’s Cowperwood decades ago. Icahn told the Financial Times last week that he was sitting with billions outside his public car. If so, War Chest will give him another hand to play.
antoine.gara@ft.com
Additional reporting by James Fontanella-Khan
