Carl Icahn: His Most Bizarre Acquisition Story

Carl Icahn: His Most Bizarre Acquisition Story

One of our favorite investors here at The Acquirer’s Multiple is Carl Icahn, and one of my favorite Icahn interviews is one he did with Dealbook. In this interview he shares his most bizarre acquisition story. It’s a story about ACF. Following is an excerpt which I have edited for clarity:

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So I was a kid, you know 31 years ago compared to today, and I see this ACF. I’m a workaholic. I keep working on companies. I see this company sells for 30 bucks and I’m looking at the rail-cars they own. I look at all the stuff that they got. They don’t make any money. I’m an old Graham and Dodd guy. I still am.

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You look and say this is so cheap. I take all the money I’d made. I put in four or five hundred million or borrow it or whatever I did and I bought a lot of the stock.

So now we’re going in and we’re saying this is so cheap it’s 30 bucks and they’ve got all these assets that are not making any money. So I finally get control of the company. I get the company and now I go in. I’m a good math guy. I don’t believe in micromanaging so I meet the CEO. He says, “We would love to have you aboard”.

So they manufacture rail-cars. I won’t bore you with the details. But they had a lot of companies and in the rail-car business the secret is very simple, that you make rail cars but the government wants to incentivize you. So the government says you can depreciate the rail-car over five, six, seven years but you can keep them for 40 years. So you get this great depreciation. It’s great tax incentive. The secret is you got to make money though to use the tax benefits. These guys kept buying companies. But every company they bought they lost money so that was a real problem.

Now I go in and they’ve got 12 floors on 3rd Avenue when real estate was pretty good. I say ok you are the guys that lease the rail-cars, you are the guys that do all the darn work. This is a true story and it’s sort of amazing but it still applies a lot today, maybe not as much, well pretty much, this is hard to believe.

I go in, I’m a good math guy. I’m gonna go understand what they do.

We go to 12th floor, I write on my yellow pad and they try to explain it. You do this and these guys do this. These guys do that. I spend the whole day. I go home take a look at my yellow pad and I can’t figure out what the hell they do so I go back the next day. The 7th floor, the 9th floor, 8th floor boom, boom, boom. I say I’m not an idiot I can’t figure out what the hell they do.

They say, “This guy does that. This is very arcane stuff you’re not gonna understand it.”

I say, “Okay fine so finally I say to him I’m going to St. Louis. I want to see the guy who’s the COO. I want to see the guy that manages the stuff that makes the rail-cars.”

They say, “Don’t go Mr. Icahn don’t go. They’re scared of you. They depend on us and we tell them what to do and they are very worried that you might do something with us.”

I’m not threatening to do anything but I’d like to see. So I go back 8th floor, 9th floor, 7th floor, I go back home. Can’t figure out what the hell’s going on. So I said screw these guys. I called the guy his name is Joe he’s in St. Louis.

I say, “Joe I want to come see you.”

He says, “Of course I’d love to see you.”

I said, “Do me a favor don’t tell the CEO I’m coming, I just want to come myself and talk to you, but don’t get nervous about anything.”

He says, “Why should I be nervous?”

This guy Joe is like a John Wayne character. He was a captain in the Marines. A tough guy. I was scared of him. I’m sitting there looking at him, we’re talking and laughing and he’s showing me stuff. I understand what he does here so I want to have a drink with him. I say, “Joey I want to ask you something. I don’t want you to think that we intend to do anything because I don’t want you to be nervous.”

He says, “Why should I be nervous?”

I say, “I just want you to tell me how many of those guys in New York you need to support your operation here because I honestly can’t figure out what they do.”

He says, “I’ll tell you what you should do. I’ll tell you how many supports I need. I need minus 30.”

I say, “Joe, what the hell’s that mean, minus 30?”

He says, “Cuz you don’t have the balls to do what I’ll tell you to do.”

I say, “What’s that?”

He says, “Get rid of all of them tomorrow. Get rid of all of them and I’ll need 30 people less that have to support them with the numbers that they don’t need from me.”

I go and I say hey it’s unbelievable I can’t believe this. Today I would have done it immediately, get rid of all 12 floors but then I was still wondering maybe this guy’s Joe’s a little crazy. How could I get rid of twelve floors of people?

So I figure how to do that and meanwhile I knew the guy who owned the building and he said, “Carl I could use the lease if you get out.”

I figure what the hell do I do. So there’s a consultant around. I brought these guys in. Nice guys, Columbia University and they were the great leasing experts of the world. I call him and three guys come in and one is the professor at Columbia and he says, “Mr Icahn we understand your problem, very arcane.”

I say, “Yeah I heard that word before. Really arcane! I want to know what they do.”

He says, “Don’t worry about it, three weeks we’ll be back it’s quarter of a million dollars.”

I say, “Okay I’ll pay a quarter of a million, come back in three weeks.”

They come back in three weeks now this is sort of hard to believe but it typifies America. They come back in after three weeks with this big book. Yellow grabs, grid graphs, green graphs.

I say, “Hey I ain’t gonna read this book. I’m colorblind anyway. All I want you to do, here’s a yellow pad, I did very well in school, I’m a numbers guy. Tell me what they do and I said here’s your quarter of a million bucks.”

I give it to him and he looks at me and smiles. He says, “You know something you’ve been square with us Mr Icahn. You seem like a good guy so I’m gonna tell you something. We don’t know what they do either!”

I’m not joking!

I said screw it I call Joe up. He comes over. I gave them their severance. Nobody was mad. I got rid of the whole 12 floors. Sold the lease for 10 million dollars.

But here’s the thing, if you shut down a grocery store, let’s say you own a grocery store. If you shut it down you hear from somebody. Somebody didn’t get the apples right. Somebody says the pears were rotten or something.

But this was like out of a science fiction movie. It’s like they never existed. I never got a letter I never got anybody calling me. It was like one of those bombs just hit the thing, killed all the people and the building stays.

You can watch the entire interview here:

Article by Johnny Hopkins, The Acquirer's Multiple

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”

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