(Adds Icahn's full quote, names of other fund managers he
praised, background on Icahn and Ackman)
By Svea Herbst-Bayliss and Jennifer Ablan
Nov 18 Activist investor Carl Icahn on Monday
said there was a chance the stock market could suffer a big
decline, saying valuations are rich and earnings at many
companies are fueled more by low borrowing costs than
management's efforts to boost results.
Unnerved by Icahn's prognosis, investors pushed stocks
lower. The S&P 500, which was trading near unchanged before
Icahn spoke, closed down 0.4 percent.
"I am very cautious on equities today. This market could
easily have a big drop," Icahn said.
He said share buybacks are driving results, not
"Very simplistically put, a lot of the earnings are a
mirage," Icahn told the Reuters Global Investment Outlook
Summit. "They are not coming because the companies are well run
but because of low interest rates."
He also hinted at his ongoing plan for Apple Inc,
the most valuable U.S. company by market value, saying he does
not want to fight with management at the iPhone giant but has no
plans to walk away from his investment.
Shares of Apple closed down 1.2 percent at $518.92; they
were trading at $523.11 before Icahn's remarks. Icahn said he
still thinks Apple's stock price is undervalued and said the
company's CEO, Tim Cook, feels the same way.
Icahn, who runs Icahn Enterprises, a diversified
holding company, is urging Apple to buy back $150 billion worth
of shares. The company has not committed to that. Icahn owns
approximately 0.4 percent of Apple's outstanding shares,
according to Thomson Reuters data.
Icahn said that he and Cook are friendly, but he still spoke
critically. "Apple is not a bank and it should not be run like a
bank because investors did not invest in a bank," he said.
"Apple has all this money, they should be using it."
Known for decades of strong-arm tactics, including proxy
fights, Icahn was diplomatically vague about exactly how he
planned to proceed in his efforts with Apple. He did joke that
if Reuters reporters had joined him for a cocktail, he might
have said more.
The 77-year-old investor's views on markets and individual
companies are widely followed in light of the strong returns he
Icahn said that in the last five years, investors who bought
shares of companies in which his firm took seats on the board of
directors and held the shares as long as an Icahn representative
stayed on those boards would have earned 28 percent on an
Icahn is known as one of the market's most powerful activist
investors. But he said he and his colleagues do not want to
micro-manage corporations. He prefers to speak with top
management and "set up parameters" for performance, such as
return on equity or performance against competitors.
"Boards should be keeping the CEO accountable," Icahn said,
adding, "that's what a board should do."
Activism has become a hot-button topic in the hedge fund
industry this year, in part because returns at activist funds
are roughly 14 percent, nearly twice as strong as gains at the
average hedge fund.
While he pointed to a handful of managers who practice
activism well, Icahn took a swipe against William Ackman, whose
Pershing Square Capital Management is one of the industry's
biggest activist managers, with average annual returns of 20
percent over the last decade.
"What we don't do is exactly what Ackman does do. We may
have an idea, but we never push it," Icahn said.
Ackman and Icahn have engaged in a very public battle on
their opposing views of Herbalife, the nutrition and
supplements company. Ackman took a large short position in
Herbalife, while Icahn bet the company's share price will rise,
which in fact it has.
Ackman also made waves in his aggressive push to overhaul
retailer J.C. Penney, but finally sold his 18 percent
stake in the company earlier this year, losing hundred of
millions of dollars, after his campaign failed.
But Icahn sang the praises of other activists, including
Keith Meister, his one-time lieutenant who now manages Corvex
Capital. Jeff Ubben's ValueAct, which was instrumental in
forcing change at Microsoft, also got high marks, as
did Daniel Loeb, whose Third Point, won big at Yahoo
where he helped install Marissa Mayer as CEO last year.
Icahn said he had looked at investing in Microsoft but did
not, declining to give a reason.
(Additional reporting by David Gaffen; Editing by Dan Grebler
and Leslie Adler)