Carl Icahn doesn't stop.He was one of the most hostile of the takeover kings in the 1980s, eventually taking over TWA. More recently he has started a multi-billion dollar hedge fund that often takes activist positions. His M.O. is that he usually accumulates a decent size position and then gradually becomes more and more hostile or active. Time Warner ( TWX) is a great example of his approach. Icahn began accumulating stock in the $17s, bought more as it dipped even into the $15s, then proposed a massive restructuring of the company. CEO Dick Parsons and the board didn't capitulate, but instead stuck to their plan, which was similar anyway to Icahn's plan, and the shareholders have been rewarded with Time Warner stock recently trading in the $22s and as high as the low $23s. At Stockpickr we follow Icahn's positions as he begins accumulating them and then we document what happens afterward as he goes active. Last week, Icahn filed a 13D filing on biotech company Telik ( TELK). Icahn over the years has become an expert on cancer drugs and is, in fact, the chairman of Imclone ( IMCL), another company where he started as an activist. Imclone produces the enormously success cancer drug Erbitrux. In the Telik filing he stated that he now owns 9.92% of the company, or 5.2 million shares. He also stated that he believed the shares were undervalued. A 13D is filed not only when an investor accumulates over 5% of a company but when he has the intention of having some discussions with management or other large shareholders. A passive investment is usually signaled with a 13G as opposed to a 13D.
Telik is a cancer drug company that is still in the FDA process. However, they are in Phase III, which is the last part of the process before the FDA says yea or nay. The problem with many biotech companies is that they don't have enough money to make it through the FDA trials and this could cause them to dilute shareholders when they are forced to raise outside money. However, Telik has $146 million cash in the bank with no debt, which is more than enough to see them through to the other side. With an enterprise value of just $150 million, if any of the drugs pass the FDA trials then Telik could be an enormous homerun. Additionally, Icahn may encourage management to do a deal with one of the large pharma companies, which would also cause the shares to jump. It's hard to find a margin of safety in a speculative biotech but with Icahn backing this one, and with Telik having enough cash and enough of a pipeline, this is an interesting bet. Another holding that Icahn has been accumulating is homebuilder WCI Communities, ( WCI) where he recently disclosed a 1.6 million-share stake. Icahn not only recently announced this stake but also announced he plans to talk with the builder about how it can boost its stock price. Icahn's stake is worth $112 million. Like most homebuilder stocks, WCI is significantly down year over year (24%). But if housing stabilizes, at 8 times trailing earnings WCI could bounce back, although it is expected to lose money next year.
Super investor Stevie Cohen, who runs SAC Capital (up 34% in 2006 and averages 30% a year since inception in 1992) also owns WCI according to that Stockpickr page. It's also worth noting that SAC followed Icahn into TWX. Symantec ( SYMC) is another recently accumulated Icahn holding that I like. I don't recall ever seeing Icahn own a tech company before. Right now it looks like he is just accumulating shares, but if the stock goes lower perhaps he will get active. Symantec is in the security-software business and Icahn could be betting on several trends. Internet security will be a problem forever. Windows Vista probably introduces more security holes than it plugs, and the need for outside software vendors beyond Microsoft to aid in security will never end. Also, many larger software companies are buying their smaller peers (e.g. Oracle buying PeopleSoft for instance. Symantec has had problems recently. The company announced on Jan 15 that sales were 14% lower last quarter than a year ago. However, it is still integrating the data storage business acquired through Veritas, and when that division is fully integrated they will be able to more easily package security software with storage sales. At 10 times cash flow, this is a fairly stable bet at these levels and that's the bet Icahn is making.
Beyond Icahn, Symantec's holders include some of the best activist funds in the world: Chapman Capital, and Jana Partners. Like SAC Capital, Jana piggybacked successfully on Icahn's Time Warner investment. Super hedge fund Rennaissance Technologies also owns shares. Click on the link for each fund to see their top holdings and other activist positions they own. If you bookmark Icahn's page at Stockpickr by rating it with 4 stars then you will get email notification whenever we update his holdings or his activist positions. Stockpickr Tip of the Day Carl Icahn is one of my favorite activists to piggyback. I like piggybacking the activist funds because they take such a large position (usually more than 5% of a company) and they are so vocal that it's hard for them to shift gears and dump shares of a company. They have usually done massive amounts of research and are committed to the position. Here are my favorite activist investors to piggyback; I will probably do an article on these sometime in the future.