Carl Icahn has been racking up a string of victories over the last two years.
The activist investor bought eBay (EBAY) stock in January 2014, demanded a split with PayPal at the same time, and he got that split by September 2014. He bought Freeport-McMoRan stock in August 2015, demanded board seats, and got them just two months later. And most recently, he bought Cheniere Energy (LNG) stock, demanded board seats and a CEO ouster, and once again got just what he wanted.
With this kind of track record, it might seem obvious what will happen with AIG and Xerox, Icahn’s two most recent targets.
Unlike other activist investors, Icahn often focuses not just on market fundamentals but instead on the poor governance that so often affects those fundamentals. The PayPal spinoff and the AIG (AIG) split up are two examples of his desire to unlock the potential value of a company’s stock. At the same time, as Fortune wrote back in 2014, eBay did not suffer from underperformance alone. It also had governance problems. Similarly, Cheniere energy’s governance problems were part of its performance problems and Freeport-McMoRan had just emerged from the largest derivative lawsuit settlement in us corporate history. In other words, it’s never just about the bottom line with Icahn.
But first, what about the latest victim of what some call Icahn’s “interference” and others term his “engagement”? Charif Souki, CEO of Cheniere Energy had quite a fall from grace. Only one year ago, Fortune wrote reported that he was the highest paid CEO in America, earning $142 million in 2013. But those headline figures also brought shareholder protest and a lawsuit alleging the payments were improper. The suit delayed the company’s annual meeting from June to September 2014.
In August 2015, Icahn acquired an 8% stake in Cheniere and had two of his associates—Jonathan Christodoro and Samuel Merksamer—appointed to the company’s board. Since then, he has acquired more Cheniere stock, with almost weekly purchases, and he has played an increasingly active role in the company. Meanwhile, Souki has sold 1.8 million shares for around $114 million since the beginning of the year.
Icahn’s statement about Souki’s termination also refers negatively to his stock sales and makes it plain that he thinks an entrepreneur like Souki had no business running Cheniere, which is poised to become a real energy utility. The board unanimously decided to replace Souki and has begun a search for his replacement. Christodoro is on the nominating and governance committee charged with the search. Cheniere declined to comment for this story.
And what of AIG? In late October, Icahn called for the company to be split into three companies: property and casualty, life, and mortgage insurance. AIG CEO Peter Hancock has refused to even contemplate such a move. There are a number of potential reasons for his refusal. The first is that he is likely to lose his job if there is such a split, and his severance package is nowhere near as big as his last two predecessors. And if Hancock doesn’t lose his job, he will end up running one of the much smaller companies and will need to take a pay cut. With either outcome, he is subject to a conflict of interest and might be expected to oppose the split even if it is good for shareholders.
Then, in the middle of November, AIG introduced “proxy access,” which allows investors to nominate up to two directors to the board. Icahn does not have this privilege, however, because a condition of this proxy access is that shareholders must have held at least 3% of the company’s stock for at least three years.
Icahn’s frustration bubbled over into another open letter to AIG in late November in which he stated that he would seek a “consent solicitation,” which allows shareholders – many of whom agree with Icahn – to present their views directly to the board, rather than through Hancock. The solicitation might also include the nomination of a new director who would replace Hancock. More fighting talk. AIG declined to comment for this story.
On Monday, Icahn announced that he had boosted his stake in Xerox (XRX) to 8.13%, making him the company’s second largest stockholder. Icahn disclosed a 7.13% stake late last month, at which time he only made formulaic statements made about the shares being “undervalued” and that there would be discussions with the company’s management and directors to “improve performance,” pursue “strategic alternatives,” and discuss “board representation.” This is a little unusual. Icahn is not shy, but on Xerox he has been very reticent.
Similarly, Xerox spokesman Sean Collins was only willing to issue the same kind of boilerplate comment on Icahn’s share purchases. “Xerox welcomes open communications with shareholders and values constructive dialogue….” The statement goes on to say that in October Xerox’s board authorized an open-ended review that basically puts everything on the table. It looks like Icahn’s acquisition is simply a signal that he wants to be part of this review.
Based on Icahn’s recent success, the future of these companies seems pretty clear.