The holding company is looking to raise funds at a suspicious time.
Shares of Icahn Enterprises L.P. (IEP -11.84%) are down sharply on Monday following news that shareholder dilution is forthcoming, adding to a sell-off that’s been underway since February. Indeed, data from S&P Global Market Intelligence indicates that as of 2:51 p.m. EDT Friday, Icahn Enterprises stock is lower to the tune of 11.6%, dragging the ticker to a two-decade low.
Other factors are contributing to this continued weakness, of course.
The Icahn Enterprises saga continues
In simplest terms, Icahn Enterprises is a holding company made up of several private and publicly traded for-profit entities. Although he’s neither its president nor its CEO, the infamous activist investor (and majority shareholder) Carl Icahn largely steers the organization.
Today’s tumble is the result of a Securities and Exchange Commission (SEC) filing disclosing that Icahn Enterprises intends to sell up to $400 million newly issued shares of the stock. Although the money raised by this sale is earmarked for “potential acquisitions and for general limited partnership purposes” that would in theory benefit existing shareholders of this $6.6 billion company, the market fears it will, in effect, dilute current shareholders’ positions.
That being said, the timing of the decision is also just a bad look.
If the name rings a bell, there’s a range of potential reasons. The latest of them is the fine recently levied by the U.S. Securities and Exchange Commission against Icahn Enterprises as well as Carl Icahn himself for failing to disclose he personally benefited from margin loans that used the company’s own stock holdings as collateral. While the matter only cost Icahn $2 million in civil penalties, it raises red flags all the same.
Icahn Enterprises is also in the midst of a legal entanglement with Nate Anderson, founder of Hindenburg Research, a “forensic financial research” company that makes short-selling recommendations based on findings that appear irregular or even illegal. In May, Anderson published a report suggesting Icahn has been inflating the valuation of its assets in order to continue funding its sizable dividend payments. Carl Icahn rejects the premise of the Hindenburg report, but the stock’s action since then suggests at least some investors are entertaining the possibility that Anderson’s conclusions could be accurate. Today’s announcement underscores their concern
Whatever the case, this sort of drama leaves shares highly vulnerable to even the slightest hint of trouble. Today’s seemingly dilutive announcement is such a hint.
Just steer clear
And that perhaps is the top takeaway following Monday’s meltdown. Icahn Enterprises may well have some compelling new investments lined up. Its oversized dividend might be sustainable. Its enigmatic figurehead could be an innocent victim of unfair assumptions. Nobody knows…at least not yet.
From a risk-management perspective, there’s nowhere near enough potential upside to justify the risk stemming from so many unknowns. Drama is typically undesirable with any investment even if only because it’s distracting. It’s even worse when some of the voiced worries could end up being merited.
Said in simpler terms, most investors shouldn’t try to catch this falling knife. There’s a reason this stock’s now been falling for over a decade even if it’s still not completely clear what that reason is.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
