Carl Icahn goes all-in to defend legacy as titan of shareholder activism

At 88 years old, Carl Icahn is a Wall Street legend. He rose to fame in the 1980s as a feared corporate raider, taking over companies like Texaco and Trans World Airlines, before defining shareholder activism in the decades that followed by buying stakes in firms from Apple (NASDAQ: AAPL) to Netflix (NASDAQ: NFLX) and then pressuring for changes that boosted share prices and earned him billions. While he made his name disrupting corporate governance and becoming a symbol of capitalism, Icahn is now staring down one of the biggest challenges of his career with a new generation of short-selling activists threatening his legacy and wealth.

The latest drama began in May 2023, when a little-known short-seller called Hindenburg Research alleged that Icahn Enterprises (NASDAQ: IEP)—the namesake holding company that’s the primary vehicle for the billionaire’s current investments—was overvalued. The public clash turned the tables on the world’s most famous shareholder activist, showing how social media-savvy upstarts could sway public opinion and financial markets.

Icahn—who has most of his personal wealth tied up in IEP—has said that Hindenburg’s report was “false,” but shares in the firm collapsed 60% in the immediate aftermath and have continued declining since. Investors keenly watched in August as the Securities and Exchange Commission levied $2 million in penalties to settle charges related to Icahn’s pledges of IEP securities as collateral to secure personal margin loans. And just this month, news that IEP would cut its dividend—a cornerstone of the company’s appeal to investors—has Icahn detractors renewing their criticism. 

Warning signs

“This seems transparently desperate,” Hindenburg founder Nate Anderson said in a post on X. “Icahn is at risk of losing it all.” The comments bite especially hard because Icahn spent his career pushing for accountability, and now serious concerns are being raised about the public company he controls. A key question surrounding Icahn’s legacy has always been whether he simply extracts wealth for his own gain, or if he’s a true shareholder advocate. This latest chapter may help provide a more definitive answer, in addition to either restoring or destroying much of the wealth he’s created over the years.

IEP says it’s reducing the dividend to be able to buy more shares of CVR Energy (NYSE: CVI), one of its largest holdings that soared during the first term of President Donald Trump before crashing just as fast. The company may be banking on a new Trump term to boost CVR once again, but with shares down 23% this month, the market remains skeptical. The high IEP dividends, meanwhile, were central to Hindenburg’s argument that Icahn was on an unsustainable path, and the fact they’re being cut gives their original argument credence. 

There are other ominous signals. A recent Wall Street Journal column, for example, noted that the investment firm’s latest financial report valued its holdings in food packaging company Viskase (OTC: VKSC) at $378 million despite its current market capitalization being only $134 million. IEP has also been refinancing debt at higher interest rates, which—in a period of declining rates—suggests that lenders are seeing increased risk in the company.

Legacy under scrutiny

Amid all the criticism, Icahn has steadfastly defended his investment thesis, even though he told investors last year that IEP had strayed too far from its own activist methodology by shorting “far more than was necessary.” Pointing to a cumulative return of 1,623% since 2000, he said the numbers speak for themselves and made a passionate case for his continued efforts to reform corporate America. “Most CEOs are incapable of creating great businesses,” he wrote in a letter. “There are very few activist investors that have the capital base, the will, the knowledge and the patience to improve companies and increase shareholder value for all holders. We have done precisely this many times.”

In a recent HBO documentary entitled “Icahn: The Restless Billionaire,” the newly embattled investor tells the story of how he first learned to play poker with salesmen from Brooklyn during a summer job as a cabana boy at Atlantic Beach to save money for college. He won $800 in one weekend—enough to pay for his room and board at Princeton University—and went on to perfect his skills while serving in the US Army. The story suggests that anyone betting against him now should proceed with caution. Is he really just bluffing? Or does he have a good hand? Maybe he’ll just get lucky one more time.

Icahn may have made a bad trade, but cutting IEP’s dividend to buy more shares of a struggling refiner shows he’s going all-in. The famous octogenarian has more than just money on the line this time around in what could be a final act, and his sterling reputation hangs in the balance as the short-sellers circle. “One thing you have to remember, it doesn’t stay forever if you’re not careful,” he said in the documentary—a cautionary reminder for any investor.