Carl Icahn: The Activist Investor

Queens, Princeton, and a thesis nobody read

Icahn was born February 16, 1936, in Far Rockaway, Queens. Middle-class household, public-school kid, smart enough to test his way into Princeton in the early '50s, which in that era was not a place that took many boys with his last name from his neighborhood. He studied philosophy and graduated in 1957. The senior thesis was on the empiricist criterion of meaning — you can look it up, I'm not going to fake having read it — and he liked to say afterwards that the discipline of analytic philosophy was what taught him to argue with a CEO. I'll take him at his word on that. Most guys on the Street in his cohort came up out of finance programs or law school. Icahn came up out of Hume and Ayer.

His mother wanted a doctor. He enrolled at NYU medical school, lasted long enough to know he hated it, and walked. There was a stretch of military service after that, then he turned up on Wall Street in 1961 looking for work as a stockbroker. Dreyfus & Co. hired him. He was twenty-five.

The arbitrage years

The early Icahn was an [[options]] guy and an arbitrage guy, and people forget that. The activist Icahn that the public knows came later. The Icahn of the 1960s was sitting in a small office working out option-pricing and hedge ratios on paper at a time when there was no listed options market — the CBOE doesn't open until 1973 — and the whole business is over the counter, quoted by phone, with wide spreads and a small circle of people who understand it. He developed a feel for it.

In 1968 he founded Icahn & Co. and bought a seat on the New York Stock Exchange. The firm specialized in options arbitrage and [[risk arbitrage]] — merger spreads, convertible-to-common arbitrage, the standard menu of the era. The deal book that crossed his desk in those years is what gave him his real education. When you sit through enough mergers as the arb on the spread, you stop seeing companies as romantic going concerns. You see them as a balance sheet, a set of contracts, and a board of directors who often have no idea what their own assets are worth. Once you've seen that, the step from arbitraging the spread to forcing the spread — making the deal happen yourself by buying enough stock to demand it — is not a long step. It's the same shovel.

The shift, late '70s into the '80s

By the back end of the 1970s Icahn was buying serious blocks of [[common stock]] in companies he thought were trading well below the value of what they owned. The play was always some version of: buy the position, write a letter, demand a board seat, threaten a proxy contest, push for [[share buybacks]], asset sales, a spinoff, a sale of the whole company — whatever unlocked the gap between price and asset value. If the board cooperated, fine. If they didn't, he made their lives in the press uncomfortable for a year or two until something gave.

The press called this corporate raiding. The phrase was new in 1980 and tired by 1990. There was a small group of men running this play in that decade — Icahn, Pickens, Goldsmith, Steinberg, a few others — and the country argued about whether they were destroying companies or fixing them. The honest answer is both, depending on the company. Some of the targets were genuinely run by sleepy boards sitting on cash and underused real estate. Some were not. The raiders were not philanthropists. They were people with capital and a tactical playbook, and the playbook worked because it exposed something real.

TWA, 1985

The TWA takeover is the one that put Icahn on the cover of the magazines. He started buying the stock in 1985, ran a tender, and ended up in control of the airline. He took it private. The way he financed and unwound that position is the textbook case of a leveraged corporate raid, and the textbook case of why people hated the raiders.

He sold pieces. The London Heathrow routes went to American Airlines in 1991 for cash. Other route authorities went elsewhere. The carrier was carrying a debt load it had never carried before he showed up, and the asset sales did not save it. TWA filed Chapter 11 in 1992. Icahn was out by then. The airline came out of [[bankruptcy]], went back into bankruptcy, and was bought by American in 2001. The brand died with the deal.

You hear the TWA story told two ways. The Icahn version: the airline was a money-losing relic of a regulated industry that was never going to make it through deregulation, and at least the shareholders got something out before it was zero. The other version: a functioning carrier with sixty years of operating history was carved up to pay for the takeover and never recovered. Both versions are partly right. I worked the desk during the deregulation era and I watched five other carriers die without anyone writing books about them. TWA's death was louder because of who killed it.

The campaigns — a partial list

After TWA, Icahn ran the same play on companies most weeks of most years for the next thirty-five. The names are worth listing because the pattern is what matters, not any one of them.

1988, Texaco. He took a stake during the Pennzoil litigation mess and pushed for changes in how the company returned capital. 1990, USX, the parent of U.S. Steel. He argued the steel and energy businesses had no business sitting under one holding company and he was right; the eventual split owes something to his pressure. 1995, RJR Nabisco — the same RJR Nabisco that had been the subject of the most-read business book of the previous decade, Barbarians at the Gate. He pushed for the food-and-tobacco separation. He pushed Time Warner in 2006 to break itself up; the company didn't fully agree but it expanded its buyback. He pushed Motorola in 2007 toward the split that eventually produced Motorola Mobility and Motorola Solutions in 2011.

The instrument he refined across these years was the public letter. An open letter to a board, addressed by name, walking through the company's capital structure and management's failures in language that everyone could read — that was Icahn's best work as a writer, and he was a competent writer. The letter was a weapon. It was the cudgel that made the boardroom conversation impossible to ignore.

Apple, 2013 to 2016

The Apple campaign is the one that surprised people who thought activist investing didn't scale to the largest companies in the world. Icahn started buying Apple in 2013, when the stock was somewhere most analysts had given up on it, and he wrote his open letters to Tim Cook arguing that the cash on the balance sheet was a misallocation if it wasn't being returned to shareholders at a much faster rate.

Apple already had a buyback program. Apple expanded it substantially during the Icahn years. Cook said in public that the expansion reflected internal capital-return planning and not external pressure, and that's the line he had to take; whether it's the whole truth is something only he knows. Icahn exited in 2016 citing concerns about Apple's exposure to China, and he made a great deal of money on the position. The campaign mattered because it showed that an activist with a small percentage of a mega-cap could still move a board's thinking. Before Apple, the consensus was that activism topped out at companies in the tens of billions. After Apple, that consensus was gone.

Herbalife, the Ackman fight

The Herbalife thing is its own animal. Bill Ackman at Pershing Square went large [[short selling|short]] on Herbalife in late 2012 and called it a pyramid scheme in public. Icahn, who had history with Ackman that was personal as much as professional, took the other side. He bought the stock long, became the largest shareholder, took board seats. Then the two of them got on CNBC together in January 2013 and yelled at each other on live television for the better part of an hour, and that segment is, to this day, the most-watched piece of financial broadcasting of the decade.

I remember watching it. The desk had it on. Half the room was rooting for Ackman, half for Icahn, and most of the floor was rooting for both of them to lose because nobody had loved either man for years. That part was funny. The substance underneath wasn't. Ackman closed his short in 2018 with losses. Icahn held until 2020 and made money on the trade overall. The lesson there isn't about who was right on Herbalife's business model — the FTC eventually ruled the company had to change some practices but didn't shut it down — it's about what happens when you run your investment thesis through a microphone. Once you tell the world you're short, every long has a reason to push the other way at you. Icahn understood that better than Ackman did. That's the whole story.

Other engagements

eBay in 2014, where he pushed for the PayPal spinoff that happened in 2015. Caesars Entertainment, during the post-bankruptcy reorganization. Hertz, where he took a controlling interest, watched the rental industry hit by the COVID shutdowns in 2020, and sold his stake at a loss when the company filed Chapter 11. Xerox in 2018, where he opposed the proposed Fujifilm merger and helped get it killed. The campaigns aren't all wins. Hertz cost him real money. Some of the smaller ones cost him reputation. Anyone who's done this for forty years has a list of trades they wish they hadn't made.

Icahn Enterprises and the Hindenburg report

Icahn's public-markets vehicle is Icahn Enterprises L.P., a master limited partnership traded on Nasdaq, currently under the ticker IEPR (formerly IEP). The partnership owns a portfolio of operating businesses across energy, automotive, food packaging, real estate, pharma, and a book of public-market investments.

In May 2023, a short-selling research outfit called Hindenburg Research published a report on Icahn Enterprises. The argument was that the units traded at a substantial premium to net asset value and that the high distribution yield was not being supported by underlying cash generation — that, in plain English, the partnership was paying out more than it was earning and using the unit price to do it. The market took the report seriously. The units fell about 70% over the months that followed. Regulators looked into it. The distribution was eventually cut.

I'm not going to render a verdict on the Hindenburg report. It made specific claims; some of those claims look correct and some look overstated to me, and the truth of the matter sits in a regulatory file I haven't read. The point worth making is the structural one. A man who built his career writing public letters to the boards of other companies, accusing them of misallocating capital, ended his career as the target of a public letter making the same kind of argument about him. The shape of the thing repeats. It always does.

Net worth and the late-career hit

Icahn's estimated net worth peaked around $25 billion in the mid-2010s. After the 2023 unit decline at Icahn Enterprises and other portfolio losses, the figure fell to around $6 billion at the end of 2024. That's a $19 billion drawdown, most of it tied up in the partnership securities he ran and held. The concentration was the killer. He had spent decades telling other CEOs to diversify the company's asset base, and his own personal balance sheet was the most concentrated bet on the Street.

I'll let that sit without comment.

The method

The strategy was a particular fusion of [[value investing]] and concentrated, control-oriented activism. The method, simplified: find a company trading below what you think the assets are worth, buy a big block, get into the room with the board, propose specific remedies — expanded buybacks, dividends, asset sales, spinoffs of underperforming divisions, replacement of senior management, sale of the whole company. If the board agreed, you got paid on the announcement. If they didn't, you fought publicly until they either agreed or wore you down.

He used [[derivatives]] and equity options to build positions efficiently and to hedge specific exposures. He used litigation as a negotiating tool — the threat of a lawsuit is often more useful than the lawsuit itself. He cultivated the financial press, which is to say he understood that getting a story onto the front of the Journal was worth more than three months of private meetings with the same outcome. And he was willing to walk away. That last one is underrated. Most activists fall in love with their thesis. Icahn would close a position if the math turned against him, take the loss, and put the capital somewhere else.

A digression

An old fellow at the racetrack — Belmont, summer of '88, paddock side — named Eddie Maguire used to tell me that the only honest people at the track were the horses. He'd been a trainer for thirty years and he'd seen every kind of fix and every kind of insider tip and every kind of money walking around looking for a bet, and he said the horse was the only one in the building with no agenda. The horse runs as fast as it can, every time, because that's what horses do. The owners and the jockeys and the touts and the punters are all running their own books. He said this leaning against a rail with a paper cup of bad coffee in his hand and a horse named Cahoots warming up about thirty feet away. Cahoots came in fifth that day at 9-1. I lost twenty bucks on him. Eddie laughed. Anyway.

What he leaves behind

Icahn's forty-plus years in the public arena institutionalized a thing that had been informal before him. Activist investing as a recognized strategy, with its own funds, its own consultants, its own defensive playbooks on the corporate side — poison pills, staggered boards, pre-emptive buybacks, shareholder-engagement protocols — all of that is downstream of the template he and a handful of contemporaries refined in the 1980s. The hedge funds running this strategy in the 2000s and 2010s were, in most cases, copying his moves with better technology and worse nerve.

The vocabulary of modern corporate finance is built on his era. Corporate raider. Greenmail. Poison pill. Activist campaign. The language survives because the dynamic survives. Boards still trade comfort for accountability when they think nobody is watching. Somebody has to watch. It might as well be somebody who owns the stock.

The list of companies he engaged with — TWA, Texaco, USX, RJR Nabisco, Time Warner, Motorola, Apple, Herbalife, eBay, Caesars, Hertz, Xerox, and the dozens of smaller campaigns I haven't named — is the closest thing American finance has to a complete catalog of where corporate management was sleeping over a forty-year stretch. Read it as a map of [[mergers and acquisitions]] activity; read it as a syllabus on shareholder activism; read it as a record of which boards were paying attention and which were not. It works as all three.

The man is eighty-nine. The record is what it is.