Icahn Merges Two Holdings, Goes Public [WSJ]
By RYAN CHITTUM, JENNIFER S. FORSYTH and KEVIN KINGSBURY
August 9, 2007 7:37 p.m.
Carl Icahn is going public.
The activist investor reshuffled his corporate holdings Thursday, in a move that will bring his three-year-old asset-management firm to the public markets.
The move merges two of Icahn's most important holdings and will result in American Real Estate Partners LP, of which Mr. Icahn is 90% owner, changing its name to Icahn Enterprises LP. The remaining 10% is publicly traded and will remain so.
[Carl Icahn]
"I believe it's a very interesting time to build a money management company with expertise in purchasing distressed securities and in activism," Mr. Icahn said in an interview.
Thursday's reshuffling will also put Mr. Icahn's hedge funds into Icahn Enterprises. These hedge funds, which control $7 billion, are at the heart of Mr. Icahn's long-standing activist approach, in which he buys assets, pressures managements and fishes for distressed opportunities. Icahn Enterprises will continue to invest in real estate and other asset-intensive businesses.
The deal is the latest in a long line of public moves from once fiercely private investors. In the past year alone, Fortress Investment Group, Blackstone Group, Apollo Management and Kohlberg Kravis Roberts & Co., have either gone public or have stated their intentions to seek public funding. Unlike Blackstone, investors in Icahn Enterprises are not only buying into the management fee income, but will also have a stake in the assets the company owns, such as its casino holdings.
The deal also comes as a time in which credit has become tight, particularly for high-yield corporate bonds. Mr. Icahn said yesterday that he believes that more distressed opportunities will arise in the next two years. "In the last year there's been an abundance of high yield debt that was sold at yields that weren't really high, and that could be a problem," he said.
Jeffrey Ptak, an equities analyst at Morningstar Inc., an investment research firm, says the deal will give the public a chance to buy a piece of Icahn, the investor. "This wouldn't be the ideal time in terms of market trajectory to go (public.) At the same time asset management is a durable business models, and he's not a one-trick pony. This is a way for him to turn on the capital spigot --capital he can use for springing on opportunities out there," Mr. Ptak says.
Under the terms of the agreement, Mr. Icahn will exchange his partnership interest in his funds for $810 million in depositary units -- in essence, AREP stock. AREP also will pay him up to $1.1 billion in additional units as long as the fund-management business earns $3.9 billion from 2007 through 2011. In addition, AREP will put $700 million into the funds and won't have to pay the 2.5% management fee or 25% incentive fee Mr. Icahn typically charges outside investors.
AREP shares traded on the New York Stock Exchange at $99.65, up more than 14%, making it one of the exchange's biggest gainers on the day.
Mr. Icahn has a storied reputation as a corporate raider, once taking over Trans World Airlines. In more recent years, he has become more of an activist investor, who takes big positions in companies and tries to force them to become more efficient. He's known as a savvy but quirky negotiator, such as the time he sang the title song from "Oklahoma!" while wrangling with Kerr-McGee Corp.
AREP, which recently failed in its attempt to acquire auto-parts maker Lear Corp. for $2.85 billion, is in the midst of selling its four Nevada casino properties to real-estate investment funds affiliated with Goldman Sachs Group Inc. for $1.3 billion. Once the deal is closed, American Real Estate will have some $4.5 billion in liquid assets.
Mr. Icahn agreed to serve as American Real Estate chairman for the next five years and chief executive of the fund-management business, called Icahn Management Entities. It provides investment-advisory and other management services to the Icahn hedge funds. Mr. Icahn will have an annual base salary of $900,000 and be eligible for "substantial contingent bonus payments" based on assets under management and meeting a certain profit target. |
