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Shares of Icahn Enterprises LP (NASDAQ: IEP) fell sharply on Monday on news that shareholder dilution is coming, adding to the sell-off that has been going on since February. Data indeed from S&P global market information indicates that as of 2:51 PM EDT on Friday, shares of Icahn Enterprises are down 11.6%, dragging the ticker to its lowest level in two decades.
Other factors are obviously contributing to this continued weakness.
The Icahn Enterprises saga continues
In the simplest terms, Icahn Enterprises is a holding company made up of several privately held and publicly traded for-profit entities. Although he is neither the president nor the CEO, notorious activist investor (and majority shareholder) Carl Icahn largely directs the organization.
Today’s drop is the result of a Securities and Exchange Commission (SEC) filing revealing that Icahn Enterprises plans to sell up to $400 million of newly issued shares of the stock. Although the money raised from this sale is intended for “potential acquisitions and for general limited partnership purposes” that would theoretically benefit the existing shareholders of this $6.6 billion company, the market fears this could will in fact be the case. diluted current shareholder positions.
That said, the timing of the decision is also just a bad look.
If the name rings a bell, there are a number of possible reasons. The most recent of these is the fine recently imposed by the U.S. Securities and Exchange Commission against Icahn Enterprises and against Carl Icahn himself for failing to disclose that he had personally benefited from margin lending using the company’s own stock as collateral. Although the case only cost Icahn $2 million in civil penalties, it still raises red flags.
Icahn Enterprises is also in the middle of a legal entanglement with Nate Anderson, founder of Hindenburg Research, a “forensic financial research” company that makes short selling recommendations based on findings that appear irregular or even illegal. In May, Anderson published a report suggesting that Icahn has inflated the valuation of his assets to continue funding his significant dividend payments. Carl Icahn rejects the premise of the Hindenburg report, but the stock’s action since then suggests that at least some investors entertain the possibility that Anderson’s conclusions could be accurate. Today’s announcement underlines their concerns
Either way, this kind of drama makes stocks very vulnerable to even the slightest hint of trouble. Today’s seemingly diluted announcement is one such hint.
Just stay away
And that is perhaps the most important conclusion after Monday’s crisis. Icahn Enterprises may have some attractive new investments planned. The excessive dividend could be sustainable. The enigmatic figurehead could be an innocent victim of unfair assumptions. No one knows…at least not yet.
From a risk management perspective, there is not nearly enough potential to justify the risk that comes from so many unknowns. Drama is generally undesirable in any investment, even if only because it is distracting. It is even worse if some of the concerns expressed may turn out to be valid.
Put in simpler terms, most investors should not try to catch this falling knife. There’s a reason why this stock has been falling for over a decade now, even if it’s still not entirely clear What that reason is.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has one disclosure policy.
Why Icahn Enterprises shares are down more than 11% today was originally published by The Motley Fool