What Is the Icahn Lift?
The Icahn lift is the name given to the rise in the price of a stock that occurs when professional investor Carl Icahn begins to purchase shares in the underlying company. The Icahn lift occurs because of Mr. Icahn's reputation for creating value for the shareholders of the companies in which he takes a majority or a sizeable stake.
- The “Icahn lift” refers to the upward effect on the share price of a company that investor/activist shareholder Carl Icahn buys into.
- Icahn accumulates a sizable position in a company that he believes is undervalued, and then publicly outlines the reasons why (and his recommendations).
- If other investors agree, they buy into the company too, causing its stock price to appreciate—the Icahn lift.
Understanding the Icahn Lift
One of Wall Street's most influential figures, Carl Icahn has been in the investment business since the 1960s through various entities, including his hedge fund, called Icahn Enterprises L.P. Labels of him range from corporate raider to vulture capitalist to greenmailer, especially in the 1980s and 1990s. Around the turn of the 21st century, though, he started getting known for his work as a shareholder activist—one who buys large stakes in a company in an effort to directly influence its board of directors and their management.
As a contrarian investor, Icahn purchases a significant number of shares in companies that he believes are undervalued by the stock market and other investors. He then publicly outlines a plan to fix what he targets as the company's problems—the reasons for the poor performance of its shares.
His ideas usually involve spinning off profitable segments, changing management, cutting costs, and buying back stock. Often, he calls for the election of an entirely new board of directors or the divestiture of assets. Icahn frequently focuses publicly on CEO compensation, saying he believes that many top executives are grossly overpaid and that their salaries don't have enough correlation with corporate performance or shareholder value—which gives them little incentive to improve.
Often, Icahn's reforms have enhanced the company's performance. But nowadays, he doesn't even have to implement them to get appreciable results. His reputation is such that once he targets a company, institutional investors follow his lead and buy into the business he's set his focus upon. The increased interest causes the share prices to rise—the Icahn lift.
Examples of the Icahn Lift
Over the years, Icahn's caused major movements in stock prices among companies including RJR Nabisco, Texaco, Phillips Petroleum, Western Union, Gulf & Western, Viacom, Uniroyal, Dan River, Marshall Field, E-II (Culligan and Samsonite), American Can, USX, Marvel, Revlon, ImClone, Fairmont, Kerr-McGee, Time Warner, Yahoo!, Lions Gate, CIT, Motorola, Genzyme, Biogen, BEA Systems, Chesapeake Energy, El Paso, Amylin Pharmaceuticals, Regeneron, Mylan Labs, KT&G, Lawson Software, MedImmune, Dell, Herbalife Nutrition, Navistar International, Transocean, Take-Two, Hain Celestial, Mentor Graphics, Netflix, Forest Laboratories, Apple, and eBay.
Cases in point of his influence on stock prices:
- In 1991, he compelled USX to spin off its steel-manufacturing division and instead focus on the petroleum business through Marathon Oil. Following the creation of a second class of USX shares to represent the steel division, both classes of stocks rose 28%.
- In the autumn of 2012, Icahn accumulated over 10% of Netflix when it was near its 52-week low. The "Icahn lift" sent the stock soaring 14% after he disclosed in a regulatory filing his stake in the streaming service/entertainment production company.
- In late 2012, Icahn began accumulating shares in Herbalife Nutrition; he eventually acquired over 35 million of them, about a 25% ownership stake in the company, and gained several seats on the Board. HIs directors worked closely with Herbalife management to stabilize the troubled nutrition firm. In August 2020, while announcing the partial sale of his stake, he noted that stock offered investors a total return of 200% in those eight years.
Icahn's company is organized as a master limited partnership. It . is a diversified holding company with operating segments in six industries: energy, automotive, food packaging, metals, real estate, home fashion, and pharmaceutical.
As of March 31, 2021, Icahn Enterprises has significant equity stakes (ranging from 15.7% to 6.4%) in the companies Oxy, Newell Brands, Cheniere, Bausch Health, and Xerox.
Icahn sees his role as a builder of shareholder value and the Icahn lift is a testament to that. "I look at companies as businesses, while Wall Street analysts look for quarterly earnings performance. I buy assets and potential productivity. Wall Street buys earnings, so they miss a lot of things that I see in certain situations," he once said.
"My opinion is that, philosophically, I’m doing the right thing in trying to shake up some of these managements," he noted in another oft-quoted statement. "It’s a problem in America today that we are not nearly as productive as we should be. That’s why we have balance-of-payments problems. It’s like the fall of Rome, when half the population was on the dole."