What Exactly is Carl Icahn Doing at Transocean?

Yesterday, Carl Icahn filed an amended 13D form at the U.S. Securities and Exchange Commission disclosing a  5.96% stake in Transocean LTD (NYSE:RIG), an international provider of offshore contract drilling services for oil and gas wells. The filing follows an agreement in which both Icahn and the company entered the day before.

The investment guru declares to hold about 21,477,900 shares, valued at approximately $1.18 billion (almost 5% of his equity portfolio). Following this filing, Icahn’s Icahn Capital Lp is the company’s largest hedge-fund bull, followed by Clint Carlson’s Carlson Capital and Leon Cooperman’s Omega Advisors, each of which own about 3.5 million shares (or about 1/7th of Icahn’s holdings).

The real purpose behind this disclosure is not just making his updated holdings public, but also reporting that–according to the aforementioned agreement–Transocean shareholders will have the right to vote for a $3 per share dividend in a meeting next year.

Icahn has been quite active at Transocean, it seems. Earlier this year, he proposed to augment dividends to $4 per share, but the company denied the request. Consequently, the dividend yield still stands at $2.24 per share. So, if shareholders finally vote for an increased dividend (of $3/share), Transocean would have to increase its payouts by approximately $1.1 billion.


The agreement achieved between Icahn and the company also contemplates other issues, like the inclusion of Vincent Intrieri, an Icahn Capital LP employee, as a candidate for Transocean’s Board of Directors, and a reduction of the maximum number of directors on its Board of Directors from 14 to 11. In addition, the company has decided to pursue a Master Limited Partnership-type yield vehicle (MLP) in order to provide additional financial flexibility, and thus ameliorate the execution of its asset strategy.

All of these moves are pretty normal for Icahn: he usually targets poorly ran companies, buys considerable amounts of shares when the price is low and then uses this to lobby for a position at the firm’s board of directors.

And this is pretty much what he’s doing at Transocean.

In fact, after the agreement was confirmed, he stated: “I am pleased that the Board has agreed to add Vince Intrieri as a nominee, and to reduce the Board size to eleven and I am especially happy about the commitment to pursue a MLP, raise the dividend and increase margins by $800 million through cost cutting and increased efficiency. I believe that Transocean is now on the road to realize its great potential. We look forward to continued collaboration with the Board of Directors and management.”

Similar investments can be tracked over this year. A month ago, the activist disclosed a 5.9% stake in oil and gas producer Talisman Energy Inc. (USA) (NYSE:TLM). In his filing, he says that asset sales, restructuring and Board representation could result from this disclosure. Another of his holdings at the energy segment is CVR Energy, Inc. (NYSE:CVI). Through his activist strategies, he profited substantially from a spinoff of the company’s oil-refining segment. Finally, at Chesapeake Energy Corporation (NYSE:CHK), his campaign to gain a seat on the board actually ended with the departure of CEO Aubrey McClendon.

Disclosure: none