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Thursday, 24 April 2014

Icahn on Icahn

Icahn on Icahn: a Q-and-A with an investing icon

On why he keeps at it …
It’s a good question. I’ve thought about it a number of times. At this point, it’s not just about the money. I like winning. There’s also a certain joy in it. I feel fulfilled by it. I know that sounds corny, but I really think I’m doing something salutary, in that it is a “wake-up” call to chief executives and boards of directors.

On the “totalitarian state” governing takeovers …
We have a dysfunctional corporate governance system in the United States and nobody can attack it and nobody can do anything about it because it’s like the feudal system. The federal government doesn’t really get into it. The state governments have laws protecting board members … The states and courts tell you it’s democratic because, for example, if shareholders don’t like the poison pill, then the shareholders can vote and the pill goes away. That’s great, so why are you complaining?

Here’s the problem. Now you go and say “I want a proposal that takes the pill away.” And they say, “That’s fair, but there’s only one little thing - the board must agree to the proposal,” under that law the shareholders can’t do it alone. And the board is never going to agree. As a result, the pill will never go away. That’s just one of many examples … These guys are highly insulated and you often can’t get them out … And you can’t even talk to other shareholders because that conversation can trigger the poison pill the way the boards write them. It’s like a totalitarian state - that’s what corporate America is.

On unions and golfing CEOs …
I’m not necessarily an ally of the unions, although I have always been able to work with them. But in a way the unions are right when it comes to a number of managements, with many exceptions. They look at these corporations and how they’re run and they understand these guys are making 700 times what the worker does and the CEO doesn’t do a thing but play golf. And that’s what a number of them do. You can’t even get them on the phone. The only time you can get them on the phone is when I file a 13D and we call them up. Then they get him off the golf course.

On management and managing …
One of the major problems in our country, with many exceptions, are CEOs – and our corporations are run in a dysfunctional manner. It’s amazing when you get in there how badly they’re run. And we can get a lot done as activists. During the last few years the market value of the common stock of companies that we were in, amazingly rose $55 billion and they were only $20 billion when we started buying. This certainly helped all shareholders.

Often the boards do the opposite of what they should be doing. A board should make management accountable. They often don’t do that, they’re often buddies. They want to go to the Super Bowl … In the companies that we control, we don’t micromanage. We let the CEO run it, but we keep him accountable at the board level. If the numbers aren’t coming, the board needs to go in and find out why. If there have to be certain changes made, the board needs to do it. It’s hard to do that in a public company. You often can’t get rid of a CEO at a public company, unless I come along with a huge proxy fight.

On not completing deals …
Think of it this way. You and your wife want to buy a house, but you want a fair price and you’re not in a rush to buy and you don’t have to buy, so you bid for a home at the price you want and you may not get it. It does not mean you wouldn’t buy the house if your price was accepted. You and I know that the typical CEO doesn’t want me to buy the target, so I have to try to buy it from shareholders by announcing a tender offer. And companies have many ways to defeat a tender offer even if the shareholders want to take it.

But in a way, it works out well for the shareholders because in every one of these companies where I got turned away, I got turned away because the shareholders didn’t want to take my bid because the company resisted the bid by promising them things that the shareholders thought were better than the price I offered. And I didn’t want to bid against the company. We made a bid for Commercial Metals, the stock went up after we made the bid and we weren’t going to chase it. In every one of those, we made a bid at our price and we didn’t want to raise the bid. But I am ready and able to buy every company I bid on, at the price I bid.

On owning companies …
When you say, “Do you really want to own the companies you target?” I would say absolutely. I want to make a good investment. That’s what I do. Since 1968, we’ve made a 28 percent return annualized. I think we did better than almost anybody in the United States. The last three years, our average is 28 percent. 2008 was a terrible year, but it averages out to 28 percent a year even including 2008. What I enjoy doing is investing money. I’d love to own the companies at the price I want to pay. But if I don’t get them because the company promised to do things to improve the value for all investors, then it’s very salutary for investors. So, you look and say, “Icahn failed, ha ha ha,” but the opposite is true.

On activist competition …
There are several hedge funds that are activists. But usually they don’t want to go too far. These hedge funds sometimes have investors who call them up and say, “I just got a call from my buddy on this board or that board, why don’t you lay off a little bit?” With me, I don’t have investors. Another reason they won’t do what I’m doing is because it may be a three to four year project. I’m getting old, but what the hell. I’ll do it. The hedge funds have to worry that the money will be withdrawn.

This is what happened in 2007-08. In my case, I had investors who wanted money back, I paid them all. I didn’t have to legally, because I could have put up gates. I didn’t. Many hedge funds didn’t have the money to do it … Another reason why a rich guy often doesn’t like being hostile is because target companies have PR firms that come close to slandering you. So a lot of guys don’t want to do it. Their wives don’t like hearing at the country club what the target’s PR firms are saying about their husbands.

On making friends and influencing people …
Here’s the amazing thing. I go into a new board and I’m really friendly. There really isn’t the disturbance or distraction you talk about. The most interesting thing is the board comes around to my way of thinking in many instances. They often say to the CEO, you know, he may have a point. Often, a number of board members subconsciously understand that the CEO is not doing a good job. So if you come and force your way in, they don’t hate you.

The proof of the pudding is in the eating … After being an activist at Yahoo and getting on the board, which led to a search deal with Microsoft, they called me up and invited me to come back on the new board. I was touched. I felt really good about the board when they did that. They had no reason to because they knew I would never have a proxy fight with them again. We also were invited back on a number of other boards, including Motorola.

Final word …
You know who I can relate to? I’m nothing like Alexander the Great and I don’t want it to be misconstrued that way, but I was reading his biography and I can relate to one aspect about the guy. He could have stayed in Persia and had a nice life. Instead, he went off and fought a new fight. That’s how I can relate. I don’t like just sitting there. I enjoy the hunt much more than the “good life” after the victory.

Context News

Jeff Goldfarb and Rob Cox conducted this discussion.

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