The stock of Icahn Enterprises (IEP) took a hit after Hindenburg Research revealed a new short position in IEP bonds. Shares of IEP dropped by about 5% and have declined by more than 40% since Hindenburg disclosed a short position in IEP common shares on May 2. Icahn Enterprises reported its Q1 earnings results a day before Hindenburg's announcement. The company also revealed that it was being probed by federal prosecutors. Icahn Enterprises is cooperating with the prosecutors, as per the company's statement.
Icahn responded to Hindenburg via a statement, criticizing the research firm for its tactics. However, Hindenburg hit back on Thursday, accusing Icahn of borrowing billions using IEP shares as collateral and reinvesting the proceeds into his own investment funds.
As a result of the decline in IEP's stock price, Icahn's personal net worth has taken a hit, and his loans could come under pressure as well. The SEC filing highlights that a prolonged decline in the market price of the depositary units could increase the likelihood of a foreclosure or forced sale of the pledged depositary units.
According to Patrick Gadson, co-head of shareholder activism at Vinson & Elkins, Icahn Enterprises could repurchase shares of the stock at a perceived low price, which would reward shareholders if Hindenburg's accusations are not true. In another scenario, a third party could come in to scoop up shares at a perceived discount, potentially clearing out the shorts.
Gadson said that Icahn has options to make things difficult for the shorts, but it's unclear whether he has used them all. The decline in IEP's stock price could be seen as an opportunity by some investors to purchase shares at a discounted price.
Social Plugin