Activist investor Carl Icahn of Icahn Enterprises (IEP) has been invested in auto parts maker Federal-Mogul (FDML) for almost a decade. He currently owns 82% of the company, which represents about 6.4% of Icahn’s investment portfolio. FDML was his fifth largest holding in 1Q16.
In 2001, when Federal-Mogul was undergoing a Chapter 11 bankruptcy, Icahn had invested in $1.1 billion in the company’s convertible bonds. In 2007, Icahn converted his investment into 25.1 million shares of the company, securing an influential, authoritative position in the company’s board. Icahn raised his ownership in the company in 2008, 2013, and 2015 to 82%.
The activist investor recently made a second bid to acquire the remaining stake of the company. His first bid of $7 per share was made in February 2016, at a 40% premium to its last trading price.
On June 17, 2016, he raised his bid to $8 per share, when the shares traded at $8.15. Icahn’s February bid contributed to providing the necessary lift to the FDML stock, which recorded a 50% jump when it closed on February 29, 2016.
Icahn’s strategy to acquire complete control of Federal-Mogul (FDML) is in line with his interest in undervalued companies in the Graham and Dodd tradition. With 100% of Federal-Mogul, Icahn wishes to implement changes that he believes are required to improve, operating, and expand its business.
Icahn sees the company as having leading market positions in various product categories and a long history of strong brand names. Icahn has also been heard connecting his growing interest in the auto and auto components industry to the decline in oil prices, which translates to increased sales for these companies. Icahn already owns IEH Auto and Pep Boys from the industry.
During the decade of Icahn’s ownership in Federal-Mogul (FDML), the stock has been in the doldrums. So far this year ended June 22, Federal-Mogul (FDML) is up over 25%, mostly attributable to the Icahn lift it got in February 2016.
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