Icahn Enterprises LP (IEP)’s Investment Philosophy

Transocean and its 7.5% potential dividend yield

In the case of Transocean LTD (NYSE:RIG), Carl Icahn has accumulated more than 20 million shares, accounting for 5.43% of the company. According to Icahn, Transocean LTD (NYSE:RIG) has lost around $11 billion in shareholder value in its two buyout deals, Aker Drilling and GlobalSantaFe. He recently mentioned that the company had wrongly timed the cyclicality of the drilling industry by acquiring low quality assets at the top of the market. Furthermore, the company had issued equity at the lowest price in eight years to pay for those overvalued deals.

On a positive note, Icahn believes that the company generated enough cash flow to maintain its strong balance sheet. He thought that the easiest way to unlock shareholders’ value is to pay dividends. He has tried to push the company to pay around $4 – $5 per share in dividend to shareholders, much superior to the current $2.24 per share dividend payment. While Transocean plans to spend around $12.5 to $14.5 billion in capital expenditure, Icahn’s plan was only $10 billion in capex spending. At $53 per share, Transocean is worth $19 billion on the market. The market values Transocean at 9.45 times EV/EBITDA. At $4 per share, the potential dividend yield would be quite juicy at 7.55%.

My Foolish take

Icahn Enterprises LP (NASDAQ:IEP) seem to be a convenient way to follow nearly all of Icahn Enterprises LP (NASDAQ:IEP)’s big ideas and investments. Investors also could follow Icahn in any individual active investments including Dell and Transocean. However, they could only be considered opportunistic opportunities on the buyout in the case of Dell and on the corporate turnaround in case of Transocean.

The article Following Icahn’s Activist Investments originally appeared on Fool.com and is written by Anh Hoang.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.