The Authentic Activist Investor: Dell Inc. (DELL), Transocean LTD (RIG), Herbalife Ltd. (HLF)

Page 1 of 2

I have been a close follower of Mr. Carl Icahn’s deals since I read the book “King Icahn” a few years ago. He is the ultimate activist investor and this year he has been particularly aggressive. The 77 year old billionaire has been very publicly involved into three big US companies. To start with, he has been fighting his fellow billionaire investor Bill Ackman regarding Ackman’s short position in Los Angeles based company Herbalife Ltd. (NYSE:HLF). Icahn has also been fighting Transocean LTD (NYSE:RIG)‘s management asking for a more generous payout ratio. Finally, a week ago, Icahn got involved into Dell Inc. (NASDAQ:DELL)‘s $24.4 billion buyout plan. It’s been only three months since 2013 started, but King Icahn has not been losing his time. Let’s take a quick look at what he is doing in these three companies. We can always learn something from a man who has been making profitable investments for more than 50 years.

Herbalife Ltd. (NYSE:HLF)

As my Columbia professor Bruce Greenwald used to say, when a transaction takes place somebody is right and somebody else is not necessarily wrong. This is particularly true in a situation when someone has a huge long position in a company – Icahn – while someone else – Ackman and his hedge fund Pershing Square – has an equally huge short position in the same company. Herbalife Ltd. (NYSE:HLF), which sells weight-loss products and nutritional supplements using a network of independent distributors (like Tupperware and Avon), has been accused by Mr. Ackman of being a “fraud” and “a pyramid scheme” that should be put out of business by federal regulators. Ackman says he is certain Herbalife Ltd. (NYSE:HLF)’s stock, which is now trading at around $41 per share, will go to zero. When Ackman made his opinion public in December 2012, the stock was trading at $42. By Christmas Eve the stock was down to $26 and here is when Icahn made his move. Icahn, knowing that Herbalife, which ships its products to 88 countries and has only 20% of its business based in the US, could survive even if the US authorities would find its business illegal, decided that he could go long Herbalife Ltd. (NYSE:HLF) and orchestrate a “short squeeze” on Ackman. A “short squeeze” happens when the investor who is short decides to close his position and, therefore, he has to go into the market and buy his previously sold shares pushing the price even higher and increasing his mounting loses. Icahn is not alone, another great investor, Dan Loeb, has done the same thing and went out to buy Herbalife ‘s shares. When in February Icahn announced that he had accumulated a 12.98% stake in Herbalife and that he intended to meet with the management to discuss “enhancing shareholder value,” Herbalife’s stock soared. Maybe Loeb and Icahn have been selling shares since the shares went up. It’s almost impossible to know. Nevertheless, Ackman still claims that Herbalife Ltd. (NYSE:HLF)’s true value is zero. We shall see the end of this story soon. By the time being, Icahn seems to be the winner.

Dell Inc. (NASDAQ:DELL)

Dell Inc. (NASDAQ:DELL)Dell’s deal is far simpler. Icahn claims a higher price for his accumulated position. Mr. Dell and private equity firm Silver Lake proposed to take the PC maker private at a price of $13.65 a share. That price is nearly $10 short of what Icahn says Dell Inc. (NASDAQ:DELL)’s intrinsic value is.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Bloodiest UFC Fights Ever Fought

Most Expensive Rum Brands in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!