Decades ago, Carl Icahn gained a formative insight from reading American novelist Theodore Dreiser. The billionaire investor was absorbed by two of Dreiser’s novels, The Financier And The Titanwhich chronicle the rise of industrialist Frank Cowperwood.
In a decisive financial stalemate, Cowperwood’s adversaries plot to call on the bank in his large personal debts. But unbeknownst to them, Cowperwood holds a large stash of assets that “could be taken out and mortgaged.” If he were to be deployed, Dreiser writes, “these men should finally see how powerful he was and how safe he was.” Cowperwood won, and Icahn said he learned a key lesson: always have a “war chest” of cash.
The 87-year-old is famous for his decades of orchestrating shareholder fights with companies including Texaco, Trans World Airlines, Apple and McDonald’s. These battles have reshaped America’s financial markets by changing the way corporations are run, gearing their management toward the interests of big shareholders like Icahn.
For nearly half a century, the mere mention of his name has struck terror into the hearts of business leaders and upset the markets. But much of Icahn’s power emanated from an obscure, little-traded public vehicle called Icahn Enterprises, which has largely gone unreviewed.
This month, Icahn was besieged by a skeptic named Nathan Anderson who, in a report published by his company Hindenburg Research, uncovered heavy debts the investor had incurred against his Icahn Enterprises shares. The revelation exposed a startling vulnerability in one of the world’s wealthiest financiers. Icahn has vowed to “fight back,” but his plans to secure his empire remain mostly a mystery.
In recent years, Icahn has made increasingly large bets against a rapidly growing market to protect his investments from a future crash. Instead of building up an emergency reserve, the exchanges resulted in nearly $9 billion in losses. Confronted with those losses last week, a wary Icahn admitted, “I may have made the mistake of not taking my own advice for the past few years.
The situation has shocked many Wall Street personalities. “It’s one of those crisis moments where you’re like, ‘Holy shit, everything I thought about someone was wrong,'” the head of a major financial firm said.
Bill Ackman, a billionaire investor with whom Icahn fought in a legendary fight over the fate of a multilevel marketing company, offered the starkest assessment. “Icahn’s favorite saying on Wall Street [is]”If you want a friend get a dog,” Ackman wrote on Twitter. “During his storied career, Icahn has made many enemies. I don’t know if he has any real friends. He could use one here.
Born to teachers in 1936, Icahn grew up in the working-class New York neighborhood of Far Rockaway, Queens. After graduating from a local public high school, he earned a degree in philosophy from Princeton University and supports himself on poker winnings.
He briefly enrolled in medical school, but dropped out and joined the army before settling down as a stockbroker. In the late 1960s, a wealthy uncle financed Icahn’s purchase of a seat on the New York Stock Exchange, where he became a specialist in “risk arbitrage,” betting on anticipated corporate mergers.
Icahn first entered the public consciousness in the 1980s when he took control of Trans World Airlines with funding from junk bond king Michael Milken. He ruthlessly sold TWA assets for cash and fought against the unions, earning a reputation as a “corporate looter”. The episode helped inspire the character of Gordon Gekko in the film Ripe Street.
In recent years, Icahn, who divorced his first wife and married his assistant, Gail, moved his business from a skyscraper overlooking Manhattan’s Central Park to Miami. He has also worked more closely with his adult children, Brett and Michelle.
Brett helped identify successful bets on Apple and Netflix and was named his father’s eventual successor. Michelle’s work at the Humane Society inspired Icahn to lead an unsuccessful campaign against McDonald’s for its treatment of livestock.
The attack on Icahn comes as he continues to fight businesses he deems mismanaged. On Thursday, he drew a draw in a war against Illumina, a company that makes machines to sequence the human genome. Icahn accused Illumina management of making reckless acquisitions and asked its shareholders to give its nominees three seats on the board. He managed to oust the chair from Illumina, but failed to win the other two seats, which would have helped him dethrone its chief executive. The result underscores his lasting influence. But he is in uncharted territory.
This week, Icahn Enterprises plunged more than 30%, adding to a beating that more than halved the company’s value. It cost Icahn billions and made the threat of a “margin call” from his lenders more immediate.
That he can prevail may well come down to the lesson he says he learned from Dreiser’s Cowperwood decades ago. Icahn told the Financial Times last week that he has billions in front of his public vehicle. If so, the “war chest” would give him one more hand to play.
Additional reporting by James Fontanella-Khan