Brett Icahn is stepping out of the shadow cast by his father, Jewish billionaire and corporate raider Carl Icahn. Brett, 34, and partner David Schechter, 38, are starting their own hedge fund management company—with a little help from the old boss.
At present, the duo manage a $4.8 billion dollar stock portfolio for Carl Ichan at Icahn Enterprises. They are also responsible for some of the elder Icahn’s most profitable investments over the past several years.
Brett and David are credited with Ichan’s decision to invest in Netflix in 2012, which was trading at $58. But in October of 2013, against the protests of Brett and David, Carl Icahn sold half his stake in Netflix, selling 2.4 million shares at about $341. The stock rose to a high of a $458, but is now trading at $320. The investment has earned a profit of about $1.6 billion thus far.
The duo are are also accountable for Carl Icahn’s decision to invest in Apple in August of 2013. To announce his investment, Carl wrote on his twitter account: “We currently have a large position in APPLE. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come.” The tweet upped the $445 billion valued stock another $17 billion. Carl’s present investment in Apple is up to $4 billion dollars, and he has yet to sell any shares.
Brett and David will own 65% of the new company, as yet unnamed, while Icahn Enterprises will own 35% after offering $1 billion dollar in start-up capital. The new company will also take money from outside investors, whereas Icahn Enterprises ceased doing so in 2011 after taking heavy losses in the financial crisis. In a letter in March of 2011, a letter went out to investors informing them of the change and the impending return of their funds: “While it may sound ‘corny’ to some, the losses that were incurred by investors in our funds in 2008 bothered me a great deal more, in many respects, than my own losses….”
Like Icahn Enterprises, the new company will also follow a shareholder-activism strategy for its investments. The strategy usually advocates changes in management, such replacing CEOs or board members. It also emphasizes “financial engineering,” which pushes companies to buy back shares, raise dividends, sell off underperforming divisions, etc.
Shareholder-activism is really a re-characterized form of corporate raiding, of which Carl Icahn was something of a pioneer. Essentially—buying up a company and selling off the parts for a greater profit. Carl is famous for this, and perhaps none of his conquests are more famous than his dealings with TWA.
Icahn bought more than 20 percent of TWA stock in 1985, then took TWA private, earning a $469 million payday—while at the same time racking up a debt of $540 million. In 1991, Icahn sold the airline’s London routes for $445 million. The sale devastated TWA, as the London routes were extremely valuable, and the airline went bankrupt a year later.
In 1993, Icahn resigned as chairman. But before he did, he signed the “Karabu Ticket Agreement.” This allowed him to buy any ticket that connected through St. Louis, TWA’s biggest hub, for 55 cents on the dollar and then resell them at a discount. He set up Lowestfare.com and made a killing. It is estimated the Karabu deal cost TWA $100 million a year.
The company went bankrupt in 1995
“If you want a friend on Wall Street, get a dog,” Carl Icahn once said. Oliver Stone borrowed the quote for Gordon Gekko, the the ruthless villain in Wall Street.
The new company is said to be setting up shop in Miami.