Icahn Enterprises Faces Setback Amidst Q1 Loss and US Prosecutor Inquiry

Billionaire investor Carl Icahn’s holding company, Icahn Enterprises LP (IEP), experienced a challenging period as it revealed a surprise quarterly loss and confirmed contact from US prosecutors. The development contributed to a 15 percent drop in IEP shares, further impacting Icahn’s efforts to defend against short selling, particularly in the aftermath of a critical report by Hindenburg Research.

The nature of the inquiry by US federal prosecutors remains unclear, leaving questions about potential connections to Hindenburg’s allegations. The report accused IEP of inflating the value of its holdings and operating a “Ponzi-like” scheme to fund dividends.

The setback for Icahn, known for his shareholder activism, marks a rare instance of facing scrutiny himself. Since the publication of Hindenburg’s report on May 2, IEP shares have lost nearly 40 percent of their value, amounting to almost $7 billion, and Icahn’s net worth, owning 85 percent of IEP, has similarly decreased by around $10 billion.

IEP addressed the prosecutor inquiries, stating that it received requests for information related to corporate governance, capitalization, securities offerings, dividends, valuation, marketing materials, and due diligence. The company emphasized its cooperation with the inquiry, clarifying that no claims or allegations have been made against it or Icahn by the US Attorney’s office.

Icahn defended IEP, dismissing Hindenburg’s report as “self-serving” and highlighting his commitment to the company’s integrity. Despite IEP’s reassurance about the sustainability of its dividend, concerns have arisen among some investors and legal experts, given the first-quarter loss and the ongoing scrutiny.

IEP reported a net loss of $270 million, attributing it to the bankruptcy of its car parts distributor, IEH Auto Parts Holding, with a one-time non-cash charge of $226 million. Excluding one-time items, the company posted a loss of 11 cents per share, missing analysts’ average estimate of a 19 cents profit.

Revenue for the first quarter, ending March 31, stood at $2.6 billion, compared to $4.1 billion in the previous year. Despite the challenges, IEP highlighted having $1.9 billion in cash and $4 billion in additional liquidity, affirming the standard industry valuation methods and citing instances where asset sale prices exceeded their stated marks.

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