Icahnography 101

What you need to know about Carl C. Icahn.

Here are two things you might not know about Carl C. Icahn: the C is for “Celian,” and he graduated with a philosophy degree from Princeton in 1957 with a thesis titled “Explication of the Imperious Criterion of Meaning.” That, perhaps, isn't the kind of thing you'd expect from one of America's most notorious corporate raiders. Then again, meaning has long been more than a philosophical question to shareholders in companies Icahn targets. Is he the shareholder activist he portrays in public? Or is he a destroyer of long-term value, as critics claim?

Icahn is pitch-perfect when talking to the press about overpaid execs, but it is sometimes hard to see where he adds value. (This is the guy, after all, for whom the word “greenmail” was in part coined.) Reading Icahn is newly important now that he has acquired an almost 10% stake in Toronto-based Fairmont Hotels and Resorts Inc. (TSX: FHR).

So should investors follow him into the stock? An excellent example of Icahn's winning ways came this year when he and his associates took a $1-billion position in Oklahoma-based energy concern Kerr-McGee Corp. (NYSE: KMG). Management initially scoffed at a suggestion it buy back US$4 billion in shares and launched a lawsuit claiming recklessness on the part of the rogue shareholders. But the company gave up in April, and borrowed money to buy back stock–boosting the share price and handing Icahn a victory.

That kind of aggressive win plays into the Icahn legend. It's rumoured his fortune of US$7.6 billion was leveraged out of US$4,000 won in an army poker game. But America's 21st richest man (according to Forbes) hasn't won every pot lately. After acquiring 10% of Blockbuster Inc. (NYSE: BBI) last December, and having his own directors elected to the board, he has had little effect on the share price. The stock, which was trading at about $10 last December, has withered to $3.55. Icahn has also struck out (so far) in his well-publicized tussle with Time Warner Inc. (NYSE: TWX) management. That company, which was trading around US$17.50 when he bought in August, continues to trade at just about the same price.

So what about Fairmont? According to Michael Smith, an analyst with National Bank Financial, there are two likely outcomes: either Icahn pushes the company to sell some hotels ahead of schedule, or he attracts a higher bidder for the whole shebang. Fairmont had been trading below net asset value through late summer–a result, says Smith, of the fact that half of the company's EBITDA comes from Canada (which U.S. tourists aren't visiting like they used to). Consider that Wall Street values hoteliers on what they're going to make this year and next, not on discounted cash flow over the next 10 to 15 years (as real estate buyers do), and some Fairmont properties would attract a nice margin if they were sold. “There are dozens of willing buyers out there,” says Smith, who suggests net asset value of the shares is between $38 and $45. Fairmont stock has risen to $45, so it looks like Icahn's raking in another pot already: he was picking up shares at around $37.50 in August.