Billionaire Carl Icahn Is Becoming An Active Activist: Dell Inc. (DELL), Herbalife Ltd. (HLF), Transocean LTD (RIG)

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It seems everywhere we look, Carl Icahn is nipping at some company’s heels, getting ready to bite. He is  the ultimate alpha investor. 60 Minutes profiled him in August 2008 and called his effect on a company’s share price the “Icahn Lift.” The premise behind it is that Icahn boosts the value of a company’s share price for other investors when he buys stock in that particular company (check out all of Icahn’s stock picks).
Icahn started his style of investing in the 1970′s and 80′s. The press originally called him a “Greenmailer” as companies would just pay him off to go away. In other words they paid a premium for his shares to leave the company alone. In the late 1980′s and 90′s, Icahn became known as a “Corporate Raider” after he bought entire companies using cash and debt. Today he’s known as an “Activist Investor.” But as Icahn told 60 Minutes, he’s been doing the same thing all along, which is identify an undervalued company and use his deep pockets to angle for change in the company’s strategy and boost the stock price. When Icahn wins, other investors win as well because investors are investing right alongside him. Let’s take a look at where Icahn is currently investing.
Dell Inc. (NASDAQ:DELL)
Dell Inc. (NASDAQ:DELL)

Dell Inc. (NASDAQ:DELL) founder Michael Dell is attempting to take the company he founded private in a leveraged buyout at $13.65 a share. Many shareholders have opposed this move and have voiced their displeasure, but to no avail. Now they have a key ally in their fight in the form of Carl Icahn. In an interview with Bloomberg, Icahn said “I simply think that Dell Inc. (NASDAQ:DELL) is paying too little for the company and I’d like to note that other investors have said that before me.” Icahn has threatened years of litigation if Dell Inc. (NASDAQ:DELL) succeeds in taking the company private at what Icahn sees as too cheap of a price. Considering that the company has $7.35 per share in cash on its balance sheet, a buyout price of $13.65 is valuing the company’s core business at just $6.30 a share. I’d have to agree with Icahn on this one (see more about other Dell opposition).

Herbalife Ltd. (NYSE:HLF)

Carl Icahn is going up against hedge fund manager Bill Ackman over Herbalife. Ackman has publicly stated that Herbalife Ltd. (NYSE:HLF) is a pyramid scheme and that he has shorted $1 billion of the company’s shares. The stock traded as low as $24.24 after Ackman came public with his claims. The company’s share price has been climbing steadily higher and Icahn accumulated his position between $35 and $38. The stock popped from $38 to $46 after Icahn’s stake was disclosed. The company is currently trading at $41.50. Icahn recently upped his stake to 15.55% by buying an additional 2 million shares (read more on Icahn v. Ackman).

In looking at the company’s business and financials, one sees a very profitable company. The company has been in business since 1980. In looking at one of Ackman’s main points that the company is a pyramid scheme, a pyramid scheme doesn’t go overlooked for over 30 years. And the company’s business is highly profitable. Herbalife Ltd. (NYSE:HLF) has a PEG ratio of 0.59 and an operating margin of 16.24%. The financials argue in favor of Icahn.

Transocean LTD (NYSE:RIG)

Icahn is using his various tactics to angle for change at Transocean LTD (NYSE:RIG). Icahn wants a $4 dividend declared, and the company’s board and chairman replaced. Before Icahn got involved, the stock was trading at $44 per share last December. Once his stake was disclosed in January, the stock shot to a 52-week high of $59.50. The company is currently trading at $53.13. From a valuation standpoint, Transocean LTD (NYSE:RIG) does look extremely undervalued. The company has a current PEG ratio, or Price/Earnings divided by annual earnings per share growth, of 0.52. Transocean LTD (NYSE:RIG) has an operating margin of 18.32% and a current book value per share of $43.50. Icahn added Transocean LTD (NYSE:RIG) to his portfolio during the fourth quarter, making it his tenth largest position.

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