* With bankruptcies down, Icahn seeks undervalued equities
* Battles for Dynegy board seats; may bid for Blockbuster
* Chesapeake, Genzyme among Icahn's top performing bets
* Icahn fund up 8 percent this year
By Emily Chasan
NEW YORK, March 7 Carl Icahn turned 75 last
month, but the activist investor is a long way from riding off
into the sunset.
On the contrary, the billionaire is shaking up corporations
and dominating headlines with the same prowess he has shown for
Whether battling for control of power company Dynegy Inc
(DYN.N), pushing cell phone and computing company Motorola to
break itself up, or bidding for chip design software maker
Mentor Graphics Corp (MENT.O), Icahn is on track for one of his
busiest years ever.
But he says his recent spurt of activity simply reflects
the feast or famine nature of his quest for undervalued
"Most companies can do something to make themselves more
effective and enhance value," Icahn said in an interview with
Reuters. "These opportunities sometimes come not in a very
orderly sequence, but you can get three or four that work well
right at the same time."
For a chart of Icahn's top performing stocks, see
For a list of the funds included in the "Smart Money 30"
group, see r.reuters.com/zuf38r
With disclosed U.S. equity positions worth $13.2 billion,
Icahn ranked fourth among the "Smart Money 30" group at the end
of 2010, according to data compiled by Thomson Reuters. The
group includes some of the largest stock-picking equity hedge
funds, led by John Paulson's Paulson & Co and its $34.4
Hedge funds, which on average returned only 4.5 percent
last year, have been betting that shareholder activism will be
one of their winning strategies for 2011. Where strategies like
classic long-short equity trading have stumbled in volatile
markets, activists like Icahn and Pershing Square's Bill Ackman
are seeing some of the strongest returns in the industry.
The Icahn Partners fund is up about 8 percent this year,
according to a person with knowledge of the fund, beating the 5
percent rise in the Standard & Poor's 500 index. Icahn declined
to comment on returns.
Strong bets on natural gas producer Chesapeake Energy
(CHK.N) and drugmaker Genzyme Corp GENZ.O have boosted the
fund's performance recently.
FORCE FOR CHANGE
Over the past six months, Icahn's fund made more than $400
million on his bet on Chesapeake. The natural gas giant was an
object of scorn two years ago for buying Chief Executive Aubrey
McClendon's antique map collection for $12.1 million.
But since Icahn disclosed acquiring a 5.8 percent stake in
December, the company has announced plans to cut spending, sell
assets and reduce debt. That will slow expansion but improve
His activism at Genzyme eventually pushed the company to
sell itself for $19 billion to Sanofi Aventis SA (SASY.PA),
generating about a $300 million gain for Icahn.
"Happily, our activism in these situations has worked very
well," Icahn said. "We go in as activists, we change the
landscape, and we're forces for change in every company we are
involved with, one way or another."
When Icahn takes a new position in a company, the
announcement typically triggers a 10 percent rise in the
company's stock price, according to a study published by
professors at Oklahoma State University and Texas A&M in
The study also found that Icahn was able to achieve at
least one of his objectives for change in over half of the
companies that remained independent.
Icahn, who began buying controlling stakes in companies in
1978, is perhaps best known for buying struggling companies out
of bankruptcy, but as big bankruptcy filings have tapered off
since 2009, there are fewer opportunities there.
Instead, he has focused on undervalued equities, said
Thomas Lauria, head of the global financial restructuring and
insolvency group at law firm White & Case, who has worked with
Icahn on restructurings like WCI Communities, MGM and Marvel
Comics. "He just seems to have a sixth sense for understanding
a hidden value," Lauria said.
Power plant owner Dynegy is a recent example. Last year,
Icahn and hedge fund Seneca Capital defeated a bid for the
power company from private equity firm Blackstone Group (BX.N).
Icahn launched his own offer for the company, but Seneca
complained that even Icahn's bid was too low.
Dynegy's management and board resigned last month after
failing to sell the company. Icahn, who still owns a stake of
about 10 percent, is seeking two seats on the board.
"The whole corporate governance system is dysfunctional,
and as a result we in the United States are having trouble
competing," Icahn told Reuters. "While there are some
exceptions, there is not enough accountability. I think my
making all these profits proves that."
Icahn declined to go into specifics about his strategy at
Dynegy and other pending situations.
Not everyone is convinced that his bid to wrap himself in
the mantle of good corporate governance bears scrutiny.
"When he actually owns a majority of the company, he does
exactly the opposite of what he was just screaming about when
he was a minority shareholder," said Scott McCarty, a portfolio
manager at Q Investments who went to court against Icahn over
telecommunications company XO Holdings Inc XOHO.OB.
Q Investments has alleged in lawsuits that Icahn and his
friends on the XO board have prevented several attempts to sell
For his part, Icahn, who owns a majority of the company,
says he has pumped millions of dollars into XO to keep it
afloat, and offered other shareholders an opportunity to put in
cash, but they declined.
"Without my injection of capital, I believe the company at
this time would be insolvent," he said. "That has certainly
helped other shareholders."
A SON ALSO RISES
Icahn can be quite persistent.
He was movie rental chain Blockbuster Inc's BLOAQ.PK
largest shareholder and served as a board member for years
after winning a proxy battle in 2005.
As the company hurtled toward bankruptcy last year, he
resigned from the board and sold his stock at a big loss. But
he bought up a big position in the company's debt ahead of its
bankruptcy, and he is considered to be a leading contender to
bid on its assets at an auction next month.
Icahn is increasingly working with his son Brett, who has
been a driving force behind recent positions in stocks like
Hain Celestial (HAIN.O) and Clorox (CLX.N).
Brett, a Princeton graduate like his father, has been
working with Icahn for a decade. The portfolio Brett manages
with his partner, David Schechter, has seen a 50 percent return
in the last eight months, Icahn said.
"There really is no nepotism. If anything, it's more
difficult for him, but he's proven out really well," Icahn
Icahn shows few signs of surrendering the stage to the next
"I enjoy doing it," he said. "It's sort of like a chess
game. I find it fascinating ... What else would I do?"
(Editing by Aaron Pressman and John Wallace)