Pre-Yahoo: Carl Icahn's Ballsiest Business Moves

He's been called "the billionaire Robinhood." He was allegedly the inspiration for Gordon "Greed is Good" Gekko's character in the film Wall Street. He is a med school dropout. Oh, and he also happens to be the 46th richest man in the world.

Carl Icahn didn’t get to where he is today by playing nice. In light of his latest bid to shakeup Yahoo, here's a look at Carl Icahn's boldest business deals of the past.

1984: BF Goodrich

Icahn saw an undervalued opportunity in the popular tire manufacturer. He purchased 4.9% of the company (about 1.1 million shares). He then contacted a director at Goodrich and announced his intention of acquiring an additional 20-25% of the company and demanding a seat on the board of directors. It was a blatant takeover attempt. But Icahn gave them an alternative: he would walk away if BF Goodrich bought back his current shares at $35 per share, a price that was 25% above the company's stock price at the time. He also promised to sign a standstill agreement, barring him from purchasing any shares of BF Goodrich for the next 5 years.

Fearing a takeover, BF Goodrich caved. They bought Icahn's shares back from him at $35/share for a total transaction value of $41 million. This was classic greenmail strategy - buy a commanding amount of a company's stock, threaten a takeover, then sell the shares back to them for a premium in exchange for walking away. Just like ransom money. This was a technique Icahn had mastered, although it's far from being his only weapon, as he soon demonstrated with TWA.

1985: TWA

After being poorly run for 27 years by Howard Hughes, TWA was beginning to fight its way back in the years between 1960 and 1978 -- then Jimmy Carter signed the Airline Deregulation Act, opening the floodgates for competitors in an industry that was already famous for low margins. After acquiring Hilton and Century 21, TWA's parent company decided to sell off the airline company. This got the attention of two men: Frank Lorenzo, president of Texas Air, and investor Carl Icahn. Both men began making plays to aggressively acquire shares of TWA's stock.

In the eyes of TWA's employees, compared to Lorenzo, Icahn was a saint. The Texas Air president was known for breaking the unions at Continental Air. As far as TWA employees were concerned, almost any alternative would be better. They favored Icahn.

It was a mistake.

For TWA, that is. Icahn made out like a bandit. After acquiring Ozark Airlines in 1986, a growth play that was a step in the right direction, he abruptly took TWA private two years later. Icahn netted himself $469 million while leaving TWA with $540 million in debt.

Icahn's next move was to sell off all of TWA's valuable London routes to American Airlines for $445 million in 1991. It was another short year before TWA filed for bankruptcy. Icahn, who was owed $190 million by the company, demanded to be compensated. With no way for TWA to raise the cash, they offered him a deal allowing him to purchase TWA tickets at a severe discount for the next 8 years under one condition: he couldn't sell them through travel agents. Icahn accepted and went on to create Lowestfare.com, forcing TWA essentially compete with their low-price tickets they gave away in the first place. It's estimated that Lowestfares.com cost TWA $100 million per year. [TWA went out of business in 2001.]

1996: Marvel Comics

Marvel, which had its first unprofitable year in 1995, was slowly declining due to low sales of comic books and baseball cards. Add in the comic company's staggering amount of debt it owed to banks, and you have a company that needed a superhero to save it.

Ronald Perelman wanted to be that superhero. A cut-throat investor in his own right, Perelman was infamous for his hostile takeover of Revlon, the popular cosmetics company. After taking Marvel public with an IPO in 1991, Perelman focused on growth by acquiring Fleer and SkyBox, two baseball trading card manufacturers. In the meantime he cut a deal with Ike Perlmutter and Avi Arad, two Israeli entrepreneurs who run Toy Biz, a highly profitable toy company, giving them a perpetual license to produce action figures of Marvel characters. Marvel's stock jumped.

Perelman leveraged the increased value by selling Marvel junk bonds, creating $500 million for himself out of thin air. Then '95 hit and sales were down. Marvel was in trouble. Perelamn's plan was to put $350 milion of his own cash back into the company, but only in exchange for newly created shares.

Icahn stepped in. He bought the junk bonds at 20 cents on the dollar. In December of 1996, Perelman's Marvel filed for bankruptcy. Icahn, supported by the bondholders, forced Perelman to leave.

Once again, Icahn was given a position of full control. However, he still had the Toy Biz founders Perlmutter and Arad to deal with. Negotiations with the Toy Biz founders broke down, with both sides unable to come to an agreement. In 1998, a federal judge stepped in and ruled in favor of Perlmutter and Arad to take over the company and merge Marvel with Toy Biz.

Icahn was officially out, unable to take part in the success of Marvel's feature films that were released soon afterwards: X-Men and Spiderman.

2007: Motorola

In 2007, Icahn set his sights on Motorola. With no prior notice, Motorola CEO Ed Zander received a call on January 30th; it was Carl Icahn, informing the CEO that he had just purchased 33.5 million shares of Motorola stock and now retained 1.4% ownership of the company. In addition, he was demanding a seat on the board.

In the face-to-face meeting that soon followed, Icahn told Zander that he wouldn't push for the board seat if the Motorola CEO agreed to perform a $12 billion stock buyback. Such a buyback would take a chunk of Motorola shares off the market thus making the stock owned by existing shareholders (Icahn) shoot up in value. Zander said he would think about it.

Six weeks later, Zander had made no progress on a buyback and Motorola found itself in deeper trouble. The company's stock took a major hit due to declining sales of the RAZR, its flagship mobile phone. Icahn couldn't believe that Zander had over-estimated sales so badly. The $12 billion stock buy back was now impossible, eventually leading to Motorola performing a meeker buyback of $7.5 billion.

At this point, most investors in Carl Icahn's shoes would have walked away. Not Carl.

In March of 2007, Icahn filed a lawsuit against Motorola in an effort to fire current board members and replace them with people of his choosing. In April of 2008, Motorola allowed Icahn to seat two members on their board of directors. Just an Icahn intended, the new board members applied pressure to help push Motorola to sell off their handset division.

The Future

A master of misdirection and an avid poker player, Icahn’s moves have a tendency to only be seen clearly in hindsight. Only time will reveal what Icahn’s true plans are for Yahoo.

John Jorgensen

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Sources
http://www.stlmag.com/media/St-Louis-Magazine/October-2005/TWA-Death-Of-...
http://money.cnn.com/magazines/fortune/fortune_archive/2007/06/11/100060...
http://seekingalpha.com/article/77407-icahn-evolves-with-the-times
http://metue.com/04-07-2008/icahn-motorola-settle-proxy-mobile-spinoff/
http://content.lawyerlinks.com/default.htm#http://content.lawyerlinks.co...
http://www.randomhouse.com/features/comicwars/timeline.html