Profiting from Hedge Funds: Winning Strategies for the Little Guy

Chapter 7

Carl Icahn

CEOs are paid for doing a terrible job. If the system wasn’t so messed up, guys like me wouldn’t make this kind of money.

—Carl Icahn

Carl Icahn is chairman of Icahn Enterprises, a diversified public holding company engaged in businesses such as real estate, metals, and consumer goods. He is also chairman of American Railcar Industries and Federal-Mogul Corporation. Born in Brooklyn in 1936, Icahn’s investment career started in 1961, as a registered representative of Dreyfus & Company, where he learned options and convertible arbitrage. He founded the brokerage firm Icahn & Co. Inc. in 1968, and purchased a seat on the New York Stock Exchange.

Icahn started acquiring large stakes in public companies in the late 1970s. The initial businesses he dabbled in included Tappan, whose shares were trading at a large discount to book value.1 The proxy fight that ensued ended when the business was bought by Electrolux for a valuation that was more than double what Icahn paid. Icahn pioneered the art of greenmailing: threatening the takeover of a business after purchasing a large stake in it, which forces the business to buy the stake back at a premium. It is akin to blackmailing, as Icahn is paid to walk away, but it is perfectly legal. Prominent businesses that were successfully subjected to this game plan include Marshall Field, American Can, Phillips Petroleum, Uniroyal, and BFGoodrich. Although he made his name as a dreaded corporate raider, Icahn did successfully ...