An insider trading investigation into his 2011 purchase of a large stake in Clorox hasn’t stopped 78-year-old billionaire Carl Icahn from doing what he does best: making large purchases of a company’s stock and then agitating for change.
The latest target is Family Dollar, the North Carolina-based discount retailer. Icahn has built up a 9.39% stake in the company, having started buying shares and options that give him effective control over shares on April 7, with buying continuing through today that added up to just over 10.6 million shares for $265.8 billion.
In a regulatory filing Icahn said through the corporate and financial vehicles that purchased the shares, that he bought the stake “in the belief” the shares were undervalued. Icahn said he sees “great long-term potential,” in the industry and that the company’s “current situation is analogous to that recently faced by companies such as CVR Energy, Forest Laboratories, Chesapeake Energy and Biogen” — all companies where Icahn took large stakes and drove large changes in corporate and financial strategy.
Icahn said in all those instances his “involvement helped to generate tremendous returns for all shareholders.” Icahn said he intends “to have conversations” with board members “to discuss the issuer’s business and strategies to enhance shareholder value” and may seek board representation. He also said the discussion may include the “exploration of strategic alternatives,” which typically means pursuing a sale to another company.
Family Dollar reported disappointing second quarter results in April, with sales of $2.7 billion, down from $2.9 billion in the second quarter of last year. The company’s profits fell even more, from $1.21 the year prior’s second quarter, to $.80 this year. “Our second quarter results did not meet our expectations,” the company’s chairman and CEO Howard Levine said in a statement. The company also announced it was going to lower prices on nearly 1,000 items and close 370 stores in the second half of the year.
While Icahn’s returns in the past few years have been fantastic — units of his publicly held vehicle Icahn Enterprises rose 246% from the end of 2010 to the end of 2013, while the S&P 500 only rose 55% — he’s had more of a mixed record in his high profile stands against company boards to get them to change their behavior. He took a large stake in Apple and campaigned for a $150 billion buyback, but eventually stood down after Apple said it would buy back an additional $14 billion. He also took a stake in eBay and very publicly called for the removal of two prominent board members and the spinoff of its payments subsidiary PayPal. But like with Apple, he eventually relented and ended the campaign after meeting with eBay’s management. Icahn got to appoint one board member.
Icahn has been under intense scrutiny since reports that federal investigators were looking into trades made by sports bettor Billy Walters and golfer Phil Mickelson in advance of Icahn announcing he took a large stake in Clorox in 2011. Icahn has said he did nothing wrong and has not been accused of any wrongdoing. His large purchase in Family Dollar and the typically aggressive public statement accompanying it shows that the billionaire activist has no interest in letting a federal investigation get in the way of his crusade against what he sees as managers and corporate board members who aren’t interested in enhancing value for shareholders.
Family Dollar shares closed at $60.53, down almost 7% on the year, but is up over 10% in after-hours trading.
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