Icahn Offers CVR Energy Little Value

NEW YORK ( TheStreet) -- Carl Icahn's newly unveiled $30 a share bid for CVR Energy ( CVI) is dusting off the playbook he used when making a disastrous $12.6 billion bid for Clorox ( CLX) in 2011.

That's because after taking a 14.5% stake in CVR Energy, Icahn may be holding out a flimsy takeover bid for the refining and nitrogen fertilizer company to drum up non-existent bidding interest from a competitor. That would mirror Icahn's unsuccessful tender offer for the cleaning products giant, which ended in September without shareholder support or competing bids.
Carl Icahn

Icahn's playing both bidder and M&A banker by recommending a few companies that could be acquirers of CVR Energy at a higher price than his $30 a share offer. Meanwhile, a clause in the offer signals that the investment mogul is trying to get shareholders to approve a thin takeover bid even if he's unable to drum up near-term strategic interest.

Icahn is bidding $30 a share in cash for all of CVR Energy's outstanding shares and is offering a "contingent value right" that will give shareholders a cash payment equal in value to a possible higher priced takeover bid. He also nominated a slate of nine hostile directors for the company's board to remove the poison pill that CVR Energy enacted when Icahn announced his large share position earlier in the year.

"We are offering shareholders a minimum of $30 per share now, a new board with a shareholder mandate to put the Company up for sale, and the upside from a sale of the Company in the form of the Contingent Value Right. This is a win-win-win for shareholders," said Icahn in a letter to CVR Energy's board. He pointed to Western Refining ( WNR), HollyFrontier ( HFC), Valero ( VLO), Marathon Petroleum ( MPC) and ConocoPhillips ( COP) as potential acquirers, which he will initiate discussions with "during the next several weeks."

But there's a catch. That contingent value right would expire nine months from a tender, meaning that if CVR Energy shareholders were to tender their shares to Icahn for $30 and two years down the line, Icahn were to sell the company for say $50 a share, investors would see none of the gain.

In the refining business companies like Holly and Frontier announced a merger less than a year ago forming HollyFrontier, while Valero, ConocoPhillips and Marathon Petroleum are all in different stages of spin and divestiture plans, making it questionable whether a bid for CVR Energy is likely in the next nine months, even if an acquirer were to eventually emerge.

Ultimately, Icahn said in his letter that a strategic acquirer or private equity firm could pay $37 a share for CVR Energy, but that valuation may be too optimistic.

"The timing for a sale of CVR Energy post Icahn is unclear and potential buyers are also unclear," says Maxim Group analyst Eliecer Palacios. Meanwhile there is good reason for industry asset spins and mergers. "Fundamentally, the refining sector is in a bearish mode. Refiners are weak and there is an excess of supply" added Palacios who notes that Valero and Western Refining are both levered with net debt to capital ratios in excess of 20%, making them unlikely to have the finances for a deal.

Since refining products are sold locally, a foreign buyer from India, China, Russia or Brazil wouldn't find much benefit from owning CVR Energy. "Who is going to pay $37 as Icahn suggested? Not that many people," added Palacios.

CVR Energy shares rose nearly 6% to $29.20, near Icahn's $30 offer but not at the premium he suggested. The company's shares have gained roughly 56% year-to-date on takeover speculation drummed up by Icahn and his large share stake. Those gains followed a near 30% 2011 gain as the company's profits and revenue climbed.

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If no refining acquirers emerged and shareholders were to see little economic value in Icahn's contingent value right, then the bid could flop in a similar fashion to his supersized Clorox offer, which was called "flimsy" by company management.

Since Icahn withdrew his Clorox bid, no acquirers have emerged.

Not content to take a stake in a company and push for management change or asset realization strategies, Carl Icahn is increasingly submitting tender offers for companies, with recent deals showing unpromising results.

In January, Icahn failed to win shareholder support of a $1.73 billion takeover bid for scram metals giant Commercial Metals ( CMC) and later that month, military vehicles maker Oshkosh ( OSK) shareholders showed a cold reaction to a hostile slate of directors that Icahn nominated as a way to push the company toward a tie-up with truck maker Navistar ( NAV). Icahn holds roughly 10% of the shares in each of the three companies.

Prior to tendering an offer for CVR Energy, Icahn had urged the board to scrap a planned asset sale that management said would lead to a special dividend paid to shareholders. On Monday, the company announced a special dividend, to be financed in part by selling a part of CVR Partners, a subsidiary of the refining specialist that produces nitrogen fertilizer.

CVR Energy's owns refineries in Kansas and Oklahoma that can process a combined 185,000 barrels a day.

Though Icahn was unsuccessful on multiple takeover attempts in 2011, he still had a strong year, returning over 37%, according to a regulatory filing.

Billion dollar plus-sized minority stakes by Icahn in El Paso ( EP) and Motorola Mobility ( MMI) netted the investment mogul impressive returns when Kinder Morgan ( KMI) and Google ( GOOG) paid big premiums for the respective companies. In those investments, Icahn pushed for specific asset spins and patent sales, respectively, which eventually yielded full sales at significant premiums.

For more on Carl Icahn, see his investment portfolio. For more on energy stocks, see the energy stocks bought and sold by hedge funds in the latest quarter.

-- Written by Antoine Gara in New York

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