Nearly five months after short-sellers rocked his financial world, activist investor and his firm Icahn Enterprises IEP are making a big change that has investors searching for the exit.
On Friday, Icahn Enterprises issued a $1 per depositary unit distribution -- representing a 12% annualized yield -- that is half of the $2 dividend the company issued the previous quarter.
DON'T MISS: Corporate Raider Carl Icahn's Empire May Be Falling Apart
The decision sent IEP down nearly 25% at last check Friday afternoon.
Slashing the dividend isn't the only big change Icahn is making.
"Over the past six months, we have significantly reduced our hedges. Going forward, we intend to stick to our knitting and focus on our activist strategy while remaining appropriately hedged," Icahn said in a letter to shareholders.
"The numbers above speak for themselves. Activism is the best investment paradigm. The reason is simple – there is no accountability in Corporate America."
In May, Nathan Anderson's Hindenburg Research put out a short-seller report saying the dividends IEP pays out are "mathematically unsustainable" due to the fact that $1.5 billion in cash dividends have been paid since 2014 despite negative free cash flow of $4.9 billion during that period.
"In short, Icahn has been using money from new investors to pay out dividends to old investors," the note stated.
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Hindenburg pointed out that Icahn owns about 84% of IEP and that he has pledged 65% of his personal holding (55% of the company) "for loans of unspecified size and unspecified terms, for unspecified purposes."
On Friday, Hindenburg announced they are maintaining their short position despite the change to IEP's dividend.
On May 2nd, we predicted that "Icahn Enterprises will eventually cut or eliminate its dividend entirely, barring a miracle turnaround in investment performance."
— Hindenburg Research (@HindenburgRes) August 4, 2023
Today, $IEP reported further investment losses and slashed its dividend by 50%.
We remain short. https://t.co/uacxg1yEBG
In July, Icahn made some other changes to address the short sellers.
After negotiations, Icahn and his lenders agreed to amend agreements that have tied his personal loans to the trading price of Icahn Enterprises shares, a main risk the short-seller outlined, The Wall Street Journal reported.
Icahn also increased his collateral and has set up a plan to fully repay the loans in three years.
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