What Is the Icahn Lift? (2024)

What Is the Icahn Lift?

The Icahn liftis the name given to the rise in the price of a stock that occurs when professional investor Carl Icahn begins to purchase shares in the underlying company. The Icahn lift occurs because of Icahn's reputation for increasing the value of stocks he takes a substantial position in.

Who Is Carl Icahn?

One of Wall Street's most influential figures, Carl Icahn has been in the investment business since the 1960sthrough various entities, most notably his hedge fund, Icahn Enterprises L.P. He has been called a corporate raider, greenmailer, and vulture capitalist, especially in the 1980s and 1990s. Around the turn of the 21st century, though, he started becoming known for his work as a shareholder activist—one who buys large stakes in a company in an effort to directly influence its board of directors and their management.

As acontrarianinvestor, Icahn purchases a significant number of shares in companiesthat he believes areundervalued by the stock market and other investors. He then publicly outlines a plan to fix what he targets as the company's problems—the reasons for the poor performance of its shares.

His ideas usually involve spinning off profitable segments, changing management, cutting costs, and buying back stock. Often, he calls for the election of an entirely newboard of directorsor thedivestitureof assets. Icahn frequently focuses publicly onCEOcompensation, saying he believes that many top executives are grossly overpaid and that their salaries don't have enough correlation with corporate performance or shareholder value—which gives them little incentive to improve.

Often, Icahn's reforms have enhanced the company's performance. But nowadays, he doesn't even have to implement them to get appreciable results. His reputation is such that once he targets a company, many institutional investors follow his lead and buy into the business he's set his focus on.The increased interest causes the share prices to rise—the Icahn lift.

Examples of the Icahn Lift

Over the years, Icahn has caused major movements in stock prices for a long list of companies includingRJR Nabisco, Texaco, Phillips Petroleum, Western Union, Gulf & Western, Viacom, Uniroyal, Dan River, Marshall Field, E-II (Culligan and Samsonite), American Can, USX, Marvel, Revlon, ImClone, Fairmont, Kerr-McGee, Time Warner, Yahoo!, Lions Gate, CIT, Motorola, Genzyme, Biogen, BEA Systems, Chesapeake Energy, El Paso, Amylin Pharmaceuticals, Regeneron, Mylan Labs, KT&G, Lawson Software, MedImmune, Dell, Herbalife Nutrition, Navistar International, Transocean, Take-Two, Hain Celestial, Mentor Graphics, Netflix, Forest Laboratories, Apple, and eBay.

Cases in point of his influence on stock prices:

• In 1991, he compelled USX to spin off its steel manufacturing division and instead focus on the petroleum business through Marathon Oil. Following the creation of a second class of USX shares to represent the steel division, both classes of stocks rose 28%.
• In 2012, Icahn accumulated over 10% of Netflix when it was near its 52-week low. The "Icahn lift" sent the stock soaring 14% after he disclosed his stake in a regulatory filing.
• Also in late 2012, Icahn began accumulating shares in Herbalife Nutrition; he eventually acquired more than 35 million of them, about a 25% ownership stake, and gained several seats on the company's board. His directors worked with Herbalife management to stabilize the troubled nutrition firm. In 2020, while announcing the partial sale of his stake, he noted that stock offered investors a total return of 200% in those eight years.

Building Shareholder Value

Icahn portrays his role as a builder of shareholder value, with the Icahn lift being a testament to that."I look at companies as businesses, while Wall Street analysts look for quarterly earnings performance. I buy assets and potential productivity. Wall Street buys earnings, so they miss a lot of things that I see in certain situations," he told Business Week magazine in 1986.

"My opinion is that, philosophically, I'm doing the right thing in trying to shake up some of these managements," he noted in another oft-quoted statement from the 1980s. "It's a problem in America today that we are not nearly as productive as we should be. That's why we have balance-of-payments problems. It's like the fall of Rome, when half the population was on the dole."

The Bottom Line

The Icahn lift is a phenomenon in which the price of a stock rises after Carl Icahn purchases its shares and other investors follow his lead. Icahn seeks companies he believes are undervalued (due to, for example, a poor management team, costs that can be easily avoided, or a business segment that is performing poorly), and if the rationale for the company's undervaluation is justifiable, the company's share price should increase.