Icahn Nears First 2012 Win With CVR Energy Bid (Update 1)

Updated to reflect CVR Energy comments and additional analyst estimates

NEW YORK ( TheStreet) - Carl Icahn is moving closer to winning a $30 a share bid for refiner CVR Energy ( CVI) after he announced that 55% of outstanding shareholders have tendered their shares to his hostile campaign.

For Icahn, a successful bid for CVR Energy -- worth roughly $2.26 billion -- would be his first successful activist campaign in some time. His luck turned for the worse in recent bids, first with a failed play for cleaning products giant Clorox ( CLX) in late 2011, and then with a bid for Commercial Metals ( CMC). Still, winning CVR Energy won't make up for lost profits after Icahn sold a 30% stake in Lionsgate Films ( LFG) before a 60% The Hunger Games-driven share rally.
Carl Icahn

In his February bid for CVR Energy, Carl Icahn dusted off the M&A playbook he used when making a disastrous $12.6 billion bid for Clorox ( CLX) in 2011.

After taking a 14.5% stake in CVR Energy, Icahn is looking to use a larger controlling stake of the refining and nitrogen fertilizer company to drum up bidding interest from a competitor. That would mirror Icahn's unsuccessful tender offer for the cleaning products giant, which ended last September without shareholder support or competing bids.

After failing with Clorox and Commercial Metals in January, the preliminary results of Icahn's tender signal that he may be successful in buying the Sugarland, TX.-based company.

"In light of the clear message that shareholders have now sent to the board, it would be a shame if the board took any action to thwart or delay our offer," Icahn said in a Tuesday statement. As part of the statement, Icahn said that he has extended his tender offer until April 30.

While Icahn declared victory on Tuesday, high hurdles still remain for the hostile campaign.

In response to initial tender results, CVR Energy stressed that the offer is non-binding and that Icahn hasn't yet bought shares to add to his 14.5% stake as a result of a "poison pill" the company enacted. "The real choice for stockholders will be at our annual meeting where they will decide whether to elect Mr. Icahn's hand-picked nominees in place of our qualified and experienced Board of Directors," said CVR Energy in a statement.

Analysts at DealAnalytics give CVR Energy an expected value of $27 a share on a 60% probability that Icahn's tender won't culminate in a deal.

CVR Energy shares rose over 6% in Tuesday trading to $28.95, slightly below Icahn's offer price, signaling that investors have increasing confidence in the takeover bid. Year-to-date, CVR Energy shares are up nearly 50% on Icahn's bid and M&A speculation.

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When making his bid in February, Icahn played 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, in his bid, Icahn is offering a "contingent value right" that will give shareholders a cash payment to a possible higher priced takeover bid. He also nominated a slate of nine hostile directors for the company's board to remove a "poison pill" that CVR Energy enacted when Icahn announced a share position earlier in 2012.

"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 February. He pointed to Western Refining ( WNR), HollyFrontier ( HFC), Valero ( VLO), Marathon Petroleum ( MPC) and ConocoPhillips ( COP) as potential acquirers.

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 $50 a share, investors would see none of the gain.

The refining business is facing earnings headwinds and a recent round of consolidation. Holly and Frontier merged less than a year ago forming HollyFrontier, while Valero, ConocoPhillips and Marathon Petroleum are all in different stages of spinoff 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.

CVR Energy owns refineries in Kansas and Oklahoma that can process a combined 185,000 barrels a day. In February, 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. Prior to tendering an offer for CVR Energy, Icahn had urged the board to focus on an outright sale.

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

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.

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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