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Sahara Group was the proud sponsor of the Indian Cricket team from 2002-2013. In 2013, the flashy owner of the Sahara group subrata roy was sent behind bars under the charges of fraud and money laundering. Crores of investor money was lost because of this scam. At that time, I’d have liked a whistleblower like Hindenburg Research to show us what was wrong with Sahara Parivar. But nonetheless, we can now see what’s wrong with the Carl Icahn group that Hindenburg has exposed in Hindenburg's latest report.
Before jumping into Icahn Hindenburg Report, let’s see who is Carl Icahn. Carl Icahn is an activist investor. What is Activist Investor?? It means that Carl Icahn identifies struggling businesses and then turnaround these enterprises through operational efficiencies. Then selling these companies at a profit a few years down the line. Carl Icahn started this trend by taking over Transworld Airlines in 1987. By 1991 Transworld Airlines was about to become profitable.
Carl Icahn realized that he was sitting on a goldmine of air-travel routes. He started selling these routes to competitors. He sold off most of the assets of Transworld Airlines. By the time he left, he had amassed greater profits than his investments. But there was nothing left at transworld airlines after selling off all the assets. Then it went into bankruptcy and was acquired by American Airlines. This is what Carl Icahn is known for.
His company is a holding company. Icahn Enterprises is divided into 2 groups. The first group identifies stocks and invests in those stocks. That is financial activities. The other group is engaged in operational activities. They identified a distressed asset and then they buy it. They fire the CEO, make the company profitable and then sell it off for a profit. Carl Icahn and his son own 85% of IEP,
People invest in IEP stocks because it gives up to 15% dividends. You invest in IEP kind of holding company stocks because you believe in Carl Icahn’s ability to make money for you. A similar company you can think of is Berkshire Hathaway of Warren Buffet. Such great returns make for a golden treasure. Then the parallels can be drawn to Sahara.
Why is this a Ponzi scheme? Since 2014 the cashflows of Icahn Enterprises have been negative. There are not generating any cash from the market. So, how is Icahn Enterprises able to give such huge dividends worth $2.5 Billion? The only way to do this if these guys sell their stocks. The stocks are sold as ATM shares or At Market shares. The stock value right now is $30 so these guys release 100 shares at the price of $30 and folks looking forward to buying these stocks go ahead and buy it. Since promoters own more than 85% of the stock they make sure that the dilution is not very well recognized in the market. Old investors are getting dividends because new people are buying the stock. This is exactly what was happening at Sahara Pariwar.
The stock is trading at $30. The underlying value of all the stocks and assets that Icahn Enterprises is trading in is $5.6 Billion. In Carl Icahn Enterprises' annual statement, they say that they own a $253 Million meat packaging facility. Now if you look it up on Yahoo Finance, the market cap of this company is $100 Million. How can IEP increase the value of this asset in its annual report? There is no technical fraud happening here. But in the present market scenario, it is impossible to raise the value of a stock by 200-300%. This is verifiable and raises questions on the credibility of Icahn Enterprises.
Only Joffrey gives recommendations about IEP. Until 2020 UBS was giving recommendations about IEP. They stopped doing so because they found it hard to find the right information about IEP. A big company like Icahn Enterprises is not sharing the right information.
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0:00 – Intro
1:08 – Pointers
1:56 – Who is Carl Icahn?
3:46 – Icahn Enterprises
5:04 – Why buy IEP shares?
6:30 – Icahn Ponzi scheme
8:37 – Net Asset Value of all companies
12:07 – Outro