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Why Carl Icahn Wants a 100% Stake in Federal-Mogul Holdings


Jul. 27 2016, Updated 9:05 a.m. ET

Icahn holds an 82% stake in Federal-Mogul Holdings

Icahn Enterprises (IEP) has been invested in auto parts maker Federal-Mogul Holdings (FDML) for almost a decade. Carl Icahn 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 on the company’s board. Icahn raised his ownership in the company in 2008, 2013, and 2015 to 82%.

Carl Icahn recently made a second bid to acquire the remaining stake of the company. The first bid of $7 per share was made in February 2016 at a 40% premium to its last trading price.

On June 17, 2016, Icahn raised his bid to $8 per share, when the shares were trading at $8.15. Icahn’s February bid contributed to providing the necessary lift to Federal-Mogul Holdings’ stock, which recorded a 45.7% jump when it closed on February 29, 2016.

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Why Icahn Enterprises wants to acquire Federal-Mogul Holdings

Icahn’s strategy to acquire complete control of Federal-Mogul Holdings is in line with its interest in undervalued companies in the Graham and Dodd tradition. With 100% of Federal-Mogul Holdings, Icahn wishes to implement changes that are believed to improve, operate, and expand its business.

IEP 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 drop in crude oil prices, which translates to increased sales for these companies. IEP already owns IEH Auto and Pep Boys from the auto (CARZ) industry.

During the decade of Icahn’s ownership in Federal-Mogul Holdings (FDML), the stock has been in the doldrums. From January 1 to July 20, Federal-Mogul Holdings (FDML) rose more than 25%, which is mostly attributable to the lift it got from Icahn in February 2016.

Apart from its investment in FDML, Icahn Enterprises has significant positions in various investments through its investment arm. Its investments include Forest Laboratories (FRX), eBay (EBAY), Chesapeake Energy (XLE) (CHK), Herbalife (HLF), and Netflix (NFLX).

In the final part of this series, we’ll look at analysts’ recommendations for Icahn Enterprises.


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