UPDATE 3-AREP buys $7 billion Icahn fund management firm
(Adds Icahn comment)
NEW YORK Aug 9 (Reuters) - American Real Estate Partners (AREP) LP (ACP.N), a holding company 90 percent owned by investor Carl Icahn, said on Thursday it acquired Icahn's investment firm, effectively bringing the money manager public.
The deal sent AREP shares up as much as 16 percent on the New York Stock Exchange.
AREP said it paid $810 million in AREP depositary receipts for Icahn Funds Management Co., a group of hedge and other funds with about $7 billion in managed assets. AREP would pay up to an additional $1.1 billion in depositary receipts should the company meet performance goals over four years.
Icahn, a veteran investor who regularly challenges corporate boards to boost performance, called the deal "a transformational event" for AREP, which will be renamed Icahn Enterprises LP and consolidates many of his holdings under a public, albeit thinly traded, entity.
"The money management area is still a growth area, especially today with the turmoil going on in the markets," said Icahn in an interview.
The combination of AREP's real estate investment and fund management arms gives it more heft to make acquisitions and take activist stances in companies that are underperforming, a hallmark of Icahn's strategy in recent decades.
Icahn Enterprises will be "an activist-oriented money manager who can take advantage of distressed situations that I believe might be available very shortly," said Icahn.
AREP stock was up $12.53, or 14.3 percent, to $99.94 in late afternoon trading. Earlier, the stock traded as high as $101.45.
The deal comes amid moves by hedge fund and private equity funds to sell shares to the public, including Blackstone Group LP (BX.N), Fortress Investment Corp LLC (FIG.N) and others. Other firms, such as Pzena Investment Management Co., which tangled recently with Icahn, have announced plans to list.
"This gives people access to one of the more successful investors of our time," said Jeff Ptak, a financial services analyst with Morningstar Inc. "Icahn has done fabulously well for his investors."
But given that AREP is 90 percent held by Icahn, "it will be tough to establish a big position," said Ptak.
The 71-year-old billionaire, who made a fortune as a corporate raider in the 1980s, managed his own money for years before opening a hedge fund in 2004 that allowed outside investors.
Icahn said he now manages about $7 billion, including about $5 billion from outside investors. Icahn usually charges investors a 2.5 percent management fee and a 25 percent performance fee --higher than most hedge funds, which typically charge "2 and 20."
Icahn declined to say what kinds of companies he will now target through the new entity, but said AREP intends to buy operating companies both in and out of bankruptcy, in addition to managing the hedge funds, which typically buy only stakes in companies.
Public listings give private partnerships a more institutionalized structure and provide currency to reward promising employees and make acquisitions. In addition, it allows founding partners such as Icahn an easier means to cash out of their companies when they want to retire.
The 71-year-old billionaire said he has no plans to retire, however. He now serves as chairman of AREP, but entered into a five-year agreement in both that role and as chief executive officer of Icahn Management, which advises Icahn funds. The deal pays Icahn a base salary of $900,000 a year and "substantial" performance payments.
AREP, which was involved in an unsuccessful bid for auto parts maker Lear Corp. (LEA.N), recently agreed to sell four Nevada casinos for a net a $1 billion gain.
Icahn said AREP has about $4.5 billion on its balance sheet.
"We intend to provide capital to grow our management companies, grow our existing companies and make further acquisitions," he said in a statement. (Reporting by Dane Hamilton)
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