This article first appeared on ntv.de
The financial world is spellbound as two legendary investors battle it out: Hindenburg Research, one of the most successful short sellers of recent years, has attacked Carl Icahn. The 87-year-old multi-billionaire is one of the most feared activist investors, also known as corporate raiders. In a detailed report, Hindenburg claims, among other things, that Icahn's listed holding company IEP is extremely overvalued. The company's share price immediately collapsed, and Icahn's personal fortune shrank by more than ten billion dollars in one fell swoop.
Short sellers and activist investors are among the biggest bugbears of corporate CEOs around the world. Short sellers bet on falling stock prices, often helping by posting negative information about companies. The short sellers make a profit by selling borrowed shares at the beginning of their action. If the price then falls, they eventually buy the paper cheaply. The spread between the sale and purchase price is your profit. Activist investors buy blocks of shares in companies and then try to increase the value of these shares, often by forcing the sale of valuable parts of the company against the will of management, demanding large-scale job cuts or even throwing out the company management altogether. Hindenburg and Icahn are among the most famous, or in the eyes of many CEOs, notorious in their industries.
The first round clearly goes to Hindenburg: The company's report that Icahn's conglomerate and fund are grossly overvalued caused IEP's share price to plummet. Icahn's fortune alone fell by more than $3 billion as a result. In addition, due to the revelations in the Hindenburg report, Bloomberg corrected its estimate of Icahn's assets by a further $7.3 billion to "only" around $14.6 billion.
Hindenburg's allegations culminate in the fact that Icahn's company resembles a pyramid scheme that does not make a profit but pays dividends to shareholders with money from new investors. The extremely high annual dividends, in turn, ensured that new investors would be attracted and the share price would continue to rise. Hindenburg also claims that individual parts of the company are valued far too highly on the balance sheet. Icahn immediately denied all allegations. The allegations only served to depress the stock price in order to make Hindenburg's short sale bet successful.
There is a certain irony in the fact that Icahn, of all people, makes such allegations. Uncovering alleged management errors and publicly exposing company bosses is also part of his business model, but with the aim of increasing the value of the shares, not reducing them. In the current dispute, two generations of aggressive investors are also clashing. Icahn has earned a reputation as a corporate looter in many corporate acquisitions and divestitures over the past four decades. Among other things, he became famous when he acquired the US airline TWA and then sold all important assets piece by piece. Icahn made hundreds of millions of dollars while the over-indebted airline filed for bankruptcy.
Hindenburg, on the other hand, was founded six years ago by financial analyst Nathan Anderson, who was only about 30 at the time. However, the investment company has already made several spectacular revelations. Hindenburg first attracted global attention in 2020 when it revealed that highly-rated electric truck startup Nikola had, among other things, falsified video of a truck driving, while in fact it had yet to build a single working vehicle.
Most recently, Hindenburg attacked the corporate empire of Indian multi-billionaire Gautam Adani for alleged balance sheet and price manipulation. The market value of the Adani Group fell by around 100 billion dollars. Gautam Adani's fortune, at times the third richest person in the world, collapsed by more than $60 billion. It is not known how high Hindenburg's profit was from his bets against the group and what part Hindenburg boss and founder Anderson played in it. In the Icahn case, too, Hindenburg did not make public how much money it had invested in corresponding stock transactions.