Icahn Delivers Slightly Under Estimates, But Focus Is On Ackman

Icahn Delivers Slightly Under Estimates, But Focus Is On Ackman
Image source: CNBC Video Screenshot

After making up with Bill Ackman, Carl Icahn could be licking his activist wounds to a certain degree.  The fund manager with among the loudest hedge fund voices might have found a little difficulty as of late, but should investors consider buying this stock on drawdown?

Icahn reported a slight earnings miss yesterday. Revenue for the quarter was $5 billion, slightly under the street number of $5.4 billion.  But what wasn’t on the financials was a significant trading risk and a slight speed bump in the intimidation column. On May 5, Icahn shareholders were granted a quarterly distribution in the amount of $1.50 per depositary unit.

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Could Herbalife fall to zero in a flash as Ackman suggests?

The famous Herbalife Ltd. (NYSE:HLF) battle between Ackman’s short and Icahn’s long may have come close to the “big o” moment for Ackman’s strategy: Herbalife flash crashing to zero.  This is what Ackman said could happen, as one outcome on his probability table is the stock moves quickly, in a flash, to have little if any value.

Icahn: Original sin in Ackman’s eyes is not paying on a deal

This disagreement only slightly overshadows the original sin: When starting out, Icahn stiffed Ackman’s fund to the tune of approximately $5 million.  Ackman recently called Icahn to tell him that he accepted his apology.  I always thought it worked by someone saying they were sorry first, then accepting the apology, but Emily Post was unavailable to referee the issue.

“We are fully wedded to the activist model across all of our segments,” Icahn reassured. “This strategy has served us well over the last 14 years and we expect to continue this trend long into the future. While the first quarter produced somewhat modest results compared to the standards we hold out for ourselves, we believe that the second quarter is off to a great start with preliminary unaudited estimated adjusted net income attributable to Icahn Enterprises of over $200 million for April.”

Drawdown investment?

If Ackman is correct, Herbalife Ltd. (NYSE:HLF) could suddenly drop to zero if regulatory screws come down and end or curtail the company’s livelihood.  Risk managers might call this catastrophic loss on in trade – a legal flash crash in a stock caused by Ackman’s own brand of regulatory activism.  After dealing with Herbalife and a less than hoped for result in eBay, shares traded down only slightly, just under 3%, as a scrappy hedge fund trader such as Icahn might be considered a good investment on a drawdown.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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