Carl Icahn's bombardment of corporate boardrooms made him one of the most famous and feared activist investors on Wall Street. It derives much of its firepower from a humble source: a small oil refining and nitrogen fertilizer company in the heart of the United States.
CVR Energy will distribute a $30 million dividend to investor Icahn Enterprises next month, on top of about $300 million sent out over the past 12 months. Since 2012, Icahn Enterprises has collected $3.2 billion in profits from CVR, a Financial Times analysis shows. Its $2 billion stake became the most valuable asset within Icahn's publicly traded financial empire.
The refiner has also served as a crucial ballast for Icahn Enterprises over the past year as it fended off a short-seller attack that caused the group to lose two-thirds of its value. The value of its CVR holdings enabled Icahn to renegotiate a personal margin loan that had been secured by a decline in Icahn Enterprises stock.
“CVR Energy is a cash cow,” said Nick Moglia, credit analyst at CreditSights. The refiner's dividend payments to Icahn Enterprises cover more than just the cash the latter pays out in large dividends to minority shareholders, he said. “It's a huge benefit to Icahn.”
Icahn took control of the refining company in 2012 after one of many battles during his half-century of investing.
Many on Wall Street expected CVR to turn around quickly to make a nice profit. Instead, Icahn ousted his board but struck up a relationship with CEO Jack Lipinski, the father of Olympic gold medal-winning figure skater Tara Lipinski, and kept the stock. Icahn Enterprises owns 66 percent of CVR.
The decision proved valuable for Icahn during a brutal period in which his broader investment portfolio lost money for a decade, much of it as a result of costly hedges the activist used to protect himself from a sharp market decline.
The Financial Times calculated last year that Icahn lost about $9 billion on hedging, more than the $6 billion he earned on activist bets from 2014 to 2024.
Last week, Icahn Enterprises announced that its net assets fell about 7 percent in the fourth quarter to $4.8 billion. The company said on Wednesday that it lost $684 million in 2023, hurt by short positions that suffered as financial markets rose.
“Given our hedged portfolio and the frequently long time horizon of our complex activist investments, our returns can often be lumpy,” Icahn said in a press release last week. “There are also times when our hedging book can conflict with the performance of our long positions.”
“While there are never guarantees, we expect our returns to improve back to historical levels as our long positions significantly outperform our hedges,” he added.
When Icahn took over CVR he was near the peak of his powers after conducting bruising campaigns against corporate giants like Texaco and Trans World Airlines. His holding company managed a sprawling portfolio that included stakes worth more than $1 billion in companies such as Apple, Netflix, Forest Labs and Herbalife, while he planned to bid for Clorox and Dell.
Although many of his takeover efforts failed, Icahn succeeded in gaining control of CVR's board of directors by taking his fight directly to shareholders, offering to buy their shares outright.
Icahn then unleashed a torrent of profits from the refiner, despite famously refusing to pay the legal and investment banking fees collected by CVR to fend off his takeover.
His $2.6 billion investment came at a time when the shale revolution was turning the United States into the world's largest oil producer. The increase in supply created a glut in the area surrounding CVR's refineries in Coffeyville, Kansas and Wynnewood, Oklahoma, allowing the company to buy crude oil at low local prices and sell refined petroleum products at higher national prices, generating huge profits.
Within just a few years, CVR paid Icahn and minority shareholders billions of dollars in dividends through regular and special payments.
Icahn later became an outspoken critic of federal mandates to blend biofuels with gasoline supplies or purchase credits to make up shortages, a position that sparked controversy when he briefly served as a special adviser to then-President Donald Trump. Despite the costs of complying with the mandate, CVR last week reported record annual net profits of $769 million.
The company did not respond to requests for comment.
By contrast, many other businesses within Icahn's empire, which include auto services, real estate and even sausage packaging, have struggled to generate meaningful profits.
“[CVR] “It's probably the greatest trade he's ever made,” said a financial executive who has followed Icahn's bet for more than a decade. “It's certainly up there in this modern era of activity in terms of the best deals anyone has done.”
Short-selling firm Hindenburg Research, led by Nathan Anderson, last May called Icahn Enterprises' earnings unsustainable and criticized the heavy personal debt Icahn took on for his own company's stock.
The Hindenburg report revealed that Icahn had borrowed against most of his 85 percent stake in Icahn Enterprises, debt that came with the risk that he might be forced to sell shares to repay the loans, potentially causing their prices to fall. The risks became clearer when Icahn Enterprises shares fell after a short-seller attack.
Icahn restructured the margin loan last summer. Lenders changed the terms so that they were tied to Icahn Enterprises' quarterly net asset value and not its volatile stock, according to securities filings. The company's stake in CVR, worth about $2.3 billion at the time, represented about a quarter of the conglomerate's total value.
“CVR is the main thread holding the rest of his empire together,” Anderson told the Financial Times earlier this year.
In a written statement responding to Anderson, Icahn said: “It is difficult to understand his reasoning. As of year's end, the CVI accounted for only approximately 20 percent of the total Individualized Education Program (IEP) index. [net asset value]. “In addition, we maintain a heavily hedged CVI position.” He declined to provide further details.
CVI and IEP are the stock symbols for CVR and Icahn Enterprises, respectively. Icahn's hedges include short positions against individual stocks and energy commodities, according to securities filings.
Standard & Poor's Global considers the loan rate of return (CVR) to be an important part of its calculations of the group's indebtedness.
“It carries a lot of weight when we calculate the loan-to-value ratio, or our measure of leverage,” said Jennifer Banger, a senior Standard & Poor's analyst who covers Icahn's projects. “It's a big part of the value of the portfolio. It's publicly listed, so it's very liquid on the one hand, but changes in the market capitalization of the company can change the overall value of the portfolio.”
Having withstood the Hindenburg attack, Icahn recently moved to the offensive. He won seats on the boards of utility company AEP and airline JetBlue after building significant stakes in both companies, and is maintaining pressure on genomics company Illumina after sacking some of its directors last year.
“We have continued to choose our locations and create new and exciting opportunities for activists,” Icahn said in a press release.
