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12 Mar 2012 By Christopher Swann

Carl Icahn’s reputation already precedes him when he turns up to agitate. Now a court-appointed official has shredded a retooling at Dynegy, where the uppity investor meddled and installed directors. Companies on the receiving end of his tactics, like CVR Energy, have all the more reason to spurn Icahn.

Once a $13 billion powerhouse, Dynegy’s equity is now worth a mere $70 million. The 76-year-old raider-cum-activist has played a significant role in the latest step of the downfall, ever since he helped block a $600 million leveraged buyout by Blackstone at the end of 2010. With a stake of nearly 15 percent, he is the largest shareholder – and responsible for two of Dynegy’s six directors.

Icahn, along with hedge fund Seneca Capital, helped persuade investors that a gas-price revival would reinvigorate the heavily indebted company. As prices kept tumbling, ever more desperate measures were attempted. A restructuring at the end of 2011, after Icahn’s appointees joined the board, shifted lucrative coal-fired assets beyond the reach of bondholders, in a move that up-ended the conventional capital structure. A court examiner slammed the maneuver as a “fraudulent transfer” and recommended that Icahn’s representatives – along with other non-officer members – be removed from the board.

The debacle won’t help Icahn’s broader cause. His shake-up efforts typically involve byzantine deal structures and hardball tactics. Take, for example, his latest target, CVR Energy. Icahn says the $2.3 billion oil refiner should sell itself. Not only does he plan to nominate a full slate of directors, but he lobbed in a takeover bid of his own that includes fiendishly complex contingent value rights. In the last couple of years, he has tried similarly inventive ploys at Commercial Metals, Clorox and Lions Gate – only to eventually walk away.

Other investors may get burned in these situations, but Icahn doesn’t always leave empty-handed. His fund achieved returns of 35 percent in 2011, a year when peers were down about 5 percent on average, according to Hedge Fund Research. But this latest episode at Dynegy provides a red alert for management and shareholders elsewhere. And the more skeptical they become, the less effective Icahn’s antics will be for him.


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