Carl Icahn, the renowned activist investor, has decided to steer his investment fund, Icahn Enterprises LP (IEP), towards a more aggressive stake in CVR Energy Inc. (CVI), while simultaneously adjusting its dividend strategy. IEP announced a significant reduction in its quarterly dividend, cutting it from $1 per depositary unit in the second quarter to $0.50 per unit for the third quarter. This move aims to conserve capital for increasing its ownership in CVR Energy from 66% to about 81%.
To achieve this, IEP is set to launch a tender offer to purchase up to 15 million more shares of CVR Energy at $17.50 each, offering a 5.9% premium over CVR’s last closing price/$16.52 in New York.
This decision comes on the heels of CVR Energy’s own financial maneuver, where the company suspended its cash dividend for the third quarter, causing its shares to plummet by 24% on October 29th.
This suspension was described by Bloomberg Intelligence analyst Brett Gibbs as a “major blow,” considering CVR Energy’s previously leading dividend yield among its refining peers. The company’s shares have since seen a 45.5% decline this year, positioning its market cap at around $1.7 billion.
Icahn, in his characteristic bold style, has labeled CVR Energy’s shares as undervalued, presenting an “attractive investment opportunity.” He remarked on the stark disparity in stock valuations currently observed in the market, where some stocks are overpriced, while others, like CVR Energy, are significantly undervalued, offering prime opportunities for activist investors like himself.
For the third quarter, IEP reported a revenue of $2.8 billion, marking a 7% decrease from the previous year, with adjusted EBITDA falling by 25% to $183 million compared to an Adjusted EBITDA of $243 million for the three months ended September 30, 2023. This financial snapshot comes after IEP and Icahn settled with U.S. regulators earlier in the year, agreeing to a $2 million fine for inadequate disclosures regarding Icahn’s pledging of IEP shares, following an investigation sparked by Hindenburg Research’s allegations of asset price inflation.
Despite the financial adjustments, Icahn remains committed to leveraging his firm’s resources towards activism, a strategy he reiterated when he halved the payouts last year to refocus on shareholder activism. Since then, IEP has secured board seats at companies like JetBlue Airways Corp. (JBLU) and American Electric Power Co. (AEP), signaling a return to Icahn’s roots in corporate governance influence.
This strategic pivot by Icahn Enterprises not only underscores a shift in investment focus but also highlights the broader implications of corporate governance, shareholder returns, and market value perception in the investment world.
Price Action: CVR Energy traded 5.94% higher at $17.50 at press time, while Icahn Enterprises traded 9.54% lower at $11.66.
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