American billionaire Carl Icahn, the world’s 50th richest man according to Forbes, agreed yesterday to buy a 5% stake in Brazilian miner Ferrous Resources for US$60 million. Icahn had been negotiating for weeks with the US-based investment fund Harbinger Capital, which owned 24% of the shares before the deal was completed. The investor, a shareholder of General Motors and Biogen, paid US$1.50 per share and has the right to buy an additional 8.5% stake of Ferrous in the next 12 months.
And the reader may ask “is this a positive or a negative development for the mining company and the Brazilian economy?” And our answer is: it depends. It can be a very positive development in terms of FDI into Brazil, as foreign capital is seen good for growth, a proof of confidence in the country’s prospects and its business environment. But based on Icahn’s investments performance in the last few years, it is a huge negative. Some call him the “world’s worst stock picker“, though we would not dare to go that far. After all, he is still a self-made billionaire. But we list here some of the “lemons” he bought into in the last few years, according to Wall St. Cheat Sheet…
Carl really made a difference at Blockbuster. In 2005, Carl Icahn began his investment stake in Blockbuster and secured representation on the company’s board. Icahn spent roughly $320 million on his stake at a time when Blockbuster was over $10 per share. He rode that dying horse all the way to bankruptcy (an Icahn theme) after the company couldn’t even successfully copy the Netflix (NASDAQ:NFLX) model. Harvard Business Schoolgrade: F. Real world grade: broke.
2. WCI Communities
Did you like excessive exposure to the bubblicious Florida real estate market during the Flip That House era? Carl did. He was in love with WCI Communities… all the way to bankruptcy (see the Icahn theme yet?).
On January 16, 2007, a Securities and Exchange Commission filing disclosed that Icahn was the beneficial owner of 14.57%, or 6.1 million shares, of WCI Communities Inc. In the filing, Icahn indicated he intended to contact WCI to discuss how to “unlock the inherent value” of its shares. Icahn served as chairman for the homebuilder. Icahn paid an average $18.46 a share — about $112.6 million — for his stake in WCI. Icahn’s shares of WCI stock are worthless today since WCI filed for bankruptcy and no longer trades on the NYSE under the ticker WCI.
3. Guaranty Financial
In January 2008, Carl Icahn owned roughly 10% of the Texas-based financing group Guaranty Financial. The stock was trading over $12 per share. Icahn pressured its former parent, Temple-Inland (NYSE:TIN), to spin off the financial group. The bullied action resulted in Guaranty finally declaring bankruptcy in the summer of 2009.
If you haven’t noticed, Icahn Enterprise LLP investors hear the word “restructuring” a lot. Unfortunately, it’s related to the companies they already own. MGM hit hard times during the recession. In 2010 the studio was forced to restructure. Guess who was on the list of people who took a hit? Carl Icahn.
Dynergy (NYSE:DYN) is classic Carl Icahn throwing good investor money after bad. Icahn Enterprises LP (NYSE:IEP) already owns an ~15% stake in the energy firm teetering on bankruptcy. Now Carl has filed a waiver with the SEC to acquire up to a 19.99% stake in Dynergy. Looks like Carl has been learning his “scaling in” approach from losers in Vegas.
In early 2007, Carl Icahn owned over 5 million shares in biotech company, Telik (NASDAQ: TELK). He purchased shares between $7 and $17 per share. By early 2009, Icahn sold his stake in Telik for under $1 per share.
On January 30, 2007, Motorola (NYSE:MMI) received notice that Icahn owned about 33.5 million shares — at the time representing a 1.39% interest in the company. Again, Icahn pushed for a seat on the board. The stock price was around $19 per share. But he was turned down by the majority of the stock holders in an election for Board of Directors. On March 24, 2008, Icahn sued Motorola as part of his efforts to gain 4 seats on Motorola’s Board and force a sale of its mobile business. This one was another big loser…. a classic case of buy high, sell low.
Hold onto your chairs, Ferrous shareholders…