Icahn Enterprises, the investment firm led by activist investor Carl Icahn, announced plans to increase its stake in CVR Energy, its top holding, while also cutting its dividend to free up capital for new investment opportunities, the Wall Street Journal reports.
According to statements expected to be released Friday, Icahn Enterprises plans to reduce its dividend payout by 50% in order to fund its goal of increasing its holdings in CVR Energy by over 20%.
Icahn Enterprises, which currently holds around 66% of CVR’s outstanding shares, is preparing to purchase up to 15 million additional shares in the Sugar Lake, Texas-based refinery at $17.50 per share. This price reflects a 6% premium over CVR’s closing price on Thursday. The offer, if completed, would bring Icahn Enterprises’ stake in CVR to over 81%. CVR’s stock has struggled this year, dropping more than 45%, while the S&P 500 index has risen by about 25%.
With the proposed tender offer, Icahn sees a chance to acquire more shares at what he considers an undervalued price.
“These undervalued situations have created great opportunities for activists,” he said in a statement.
Icahn has emphasized that he believes certain stocks are currently undervalued, making this an opportune time to pursue new investments.
To support the tender offer and other potential future transactions, Icahn announced Icahn Enterprises would again cut its dividend, now to $0.50 per share—its second reduction since last year’s short-seller report from Hindenburg Research. The report alleged that Icahn Enterprises was overvalued, with inflated asset valuations and an unsustainable dividend. In response, the firm initially halved its quarterly dividend from $2 to $1 per share, marking its first dividend cut since 2011.
The latest dividend reduction lowers the yield to 16% on an annualized basis. Icahn Enterprises’ share price has dropped by over 25% this year amid both market conditions and the fallout from the Hindenburg report, which Icahn has dismissed as misleading.
CVR, which has been a core holding in Icahn’s portfolio for over a decade, had previously delivered significant dividends, but last month it suspended its own third-quarter dividend. This move, which CVR CEO David Lamp attributed to economic uncertainty, led to the largest single-day drop in CVR’s share price on record, which in turn impacted Icahn Enterprises’ portfolio.
In its current strategy, Icahn Enterprises holds approximately $2.3 billion in cash and cash equivalents, which Icahn plans to leverage not only for the CVR tender offer but also for other potential investments.
