Icahn Just Can’t Pass Up a Deal

Customers swear by the steaks at the upscale Morton’s of Chicago restaurants. But that hardly explains why investor Carl Icahn, who has waged financial war for two decades with the giants of Corporate America, fought a months-long contest this year to buy a chain with just 65 locations around the country.

In losing another suitor, Icahn walked away with just less than $1 million in profit on his Morton’s stock -- pocket change for someone whose net worth, according to Forbes magazine, is $5.8 billion.

So why would Icahn, now 66, spend time and energy jousting for such a small prize?

Some say it’s because Icahn was personally motivated in this case; a family acquaintance had made an earlier offer for Morton’s with backing from Icahn.

But the larger reason is that the size of the gain no longer matters to him.

More than a decade after he became fabulously rich and famous -- some say infamous -- as a top corporate raider in the 1980s and ‘90s, Icahn still is battling CEOs, other investors and the changing tides of financial markets simply for sport. In doing so, he keeps alive the debate over whether his actions ultimately benefit companies, their employees and their investors by challenging a firm’s management and efficiency, or whether his deal-making wreaks unnecessary havoc for those caught in his pursuit of profit.

Either way, “I just enjoy doing it ... a good deal,” Icahn said in an interview, adding that he has no plans to stop. “It’s an intellectual challenge to get it done right.”

Whether it’s buying cheap stocks and bonds of a distressed company, shorting inflated stocks or launching yet another hostile bid for a business, New York-based Icahn focuses on unearthing hidden value.

Savvy, tenacious and ruthless once he fixes on a target, Icahn cares little whether his investments are perceived as sexy or dull.

Making money is what counts -- not because he needs it, but to keep score.

“He really does like the struggle,” said Wilbur Ross, head of investment banker W.L. Ross & Co. in New York, who has been both an ally and opponent of Icahn’s various deals over 20 years. “He’s a brilliant guy, and he’s also the most competitive person I know, bar none.”

Just ask Teddy Forstmann, one of the nation’s most successful investors. Two weeks ago, a group led by his firm, Forstmann Little & Co., ceded control of Reston, Va.-based XO Communications Inc. to Icahn after a battle that lasted for months. Icahn mounted his bid for the ailing provider of phone and Internet services to businesses after buying about $500 million of XO’s bank debt.

Forstmann won’t comment publicly on his tussle with Icahn. The fight nonetheless illustrates how Icahn is starting to exploit the meltdown of the telecommunications industry.

“I’m still bearish on the stock market in general,” Icahn said. “But there are certain industries that have opportunities such as telecom. However, you must pick the right telecom.”

Icahn won’t get more specific. His actions still move markets, and he’s not about to tip his hand. He declined to comment on reports that he has been buying bonds of long-distance provider WorldCom Inc., but confirmed he made a quick investment in another scandal-plagued company, Tyco International Ltd., and then sold it for an unspecified gain. Icahn also bought a big chunk of bonds in auto parts maker Federal-Mogul Corp., which is in bankruptcy proceedings and facing asbestos-related litigation.

There’s also recurring speculation that Icahn will buy another company in Las Vegas, where he’s already made bets on relatively cheap properties by purchasing control of the Stratosphere and the Arizona Charlie’s hotel-casinos. He also controls the Sands Hotel & Casino in Atlantic City, N.J.

But Icahn, true to form, has been deliberate in Las Vegas. Although there are other troubled properties that could be possible targets, Icahn hasn’t stepped forward. “He’s very careful,” said Anthony Curtis, publisher of the Las Vegas Advisor, a newsletter that tracks Sin City. “He’ll be willing to stay where he’s at before he’ll get into a bad deal.”

Elsewhere, though, Icahn has been busy the last two years. He emerged victorious from a bitter, five-year fight in which he pressed RJR Nabisco Holdings to split its tobacco and food groups, a campaign that netted him nearly $1 billion in stock profits. (The Nabisco unit ultimately was sold to Philip Morris Cos.) As the stock market’s bubble was bursting, Icahn made a killing by heavily shorting stocks such as AOL Time Warner Inc., Internet travel site Priceline.com and battered insurer Conseco Inc., which now trades for pennies a share. To short a stock is to bet that its price will fall.

He also threatened, before changing his mind, to shake things up at companies as big as General Motors Corp. and as small as Visx Inc., a Santa Clara-based maker of lasers used in eye surgery.

Through his firm American Real Estate Partners and other holdings, Icahn also has interests in residential real estate projects and commercial properties such as office buildings, banks and supermarkets.

Sending Shock Waves

Icahn practically became a household name in the 1980s when, with ample access to “junk bond” financing, he and other raiders routinely bought stakes in companies and then threatened to launch hostile takeover bids. The threat alone prompted some companies to buy Icahn’s interest at a fat premium to make him disappear, a practice dubbed “greenmail.”

He merely had to announce that he had acquired 5% or more of a corporation’s stock to send shock waves through the company, its employees and the communities where it operated. If a target opted to resist Icahn, it sometimes laid off workers, borrowed heavily or sold all or part of its business to boost its stock price itself. That enabled Icahn to still cash out with a profit and move on.

Icahn’s prey included Texaco, now part of ChevronTexaco, and Phillips Petroleum, now part of ConocoPhillips. On a few occasions he actually bought the company. One was Trans World Airlines (now part of AMR Corp.), and he still owns ACF Industries, a New York-based rail-car leasing concern.

To many people caught in his raids, Icahn was capitalism gone insane; he personified the “greed is good” mentality they saw pervading Wall Street. Managements and labor unions found common ground in accusing him of sparking massive layoffs and damaging local economies. The criticism was especially pointed at some of the companies he acquired and managed, such as TWA.

Icahn, who now risks his own cash and seldom borrows, still alienates many of the people involved with the companies he roils. “His very presence in the situation was extraordinarily unsettling for the employees and bad for morale,” said the top executive at one of Icahn’s recent targets, who spoke on the condition of anonymity so as not to tangle with Icahn further.

“This is an individual who has a value system that is totally different than mine,” the executive said. “I never enjoy making money primarily at other people’s disadvantage.”

But untold numbers of other stockholders who invested in Icahn’s targets also have made money as he has pushed share prices higher. Icahn is defensive about the criticism -- he has always bristled at the term “raider” -- but ultimately is unmoved. Long a self-described advocate of all shareholders, Icahn points to RJR Nabisco, Texaco and other stock plays as evidence of how he created wealth not only for himself but also for others by forcing the companies to restructure.

Icahn long has railed against entrenched executives at many public companies for poor management and wasteful spending on themselves while doing little to help stockholders. Icahn’s wealth, power and tough bargaining tactics often diluted the effect of his message, but he still complains about sleepy managements and their expensive perks.

“While there are many good managers, there are still too many bad ones,” he said last week.

Ross, the investment banker, said Icahn’s views have been bolstered by this year’s corporate scandals, which exposed lax oversight by directors and lavish lifestyles for executives at Tyco, WorldCom, Enron Corp., Global Crossing Ltd. and Adelphia Communications Corp. while those companies were collapsing. “This is what Carl has been very much a champion against for a very long time,” Ross said.

Med School to Wall St.

Carl Celian Icahn was raised in a middle-class neighborhood in the New York borough of Queens. His mother was a school teacher, his father a lawyer, teacher and cantor at the local synagogue. The younger Icahn received a degree in philosophy from Princeton University in 1957 (he still drops quotes from the likes of Aristotle). Then he tried medical school at New York University, but dropped out after three years.

He migrated to Wall Street in the early 1960s, founding Icahn & Co. in 1968 after some years of struggle. At first, he primarily speculated on takeover situations, or what’s called risk arbitrage. But as the years went by, Icahn increasingly took an active role in pressuring companies to change to spur their stock prices higher.

Then came the 1980s, the unleashing of merger mania and the onset of the corporate raider.

The moniker seems faded today. At their zenith, Icahn and other raiders such as T. Boone Pickens excelled at making quick profits and, despite their threats, had little interest in running most of the companies they targeted. But the attacks became more difficult as companies staggered directors’ board terms, adopted “poison pill” shareholder-rights plans and installed other anti-takeover measures.

So Icahn began digging in against his foes. As he proved in the RJR Nabisco and TWA cases, and more recently with XO Communications, he’s now prepared to spend months or years to win.

But he doesn’t always win. His investment in former U.S. Steel Corp. parent USX Corp. produced only scant profit in the early 1990s. Icahn also was roundly criticized for doing a poor job when he ran TWA, which entered bankruptcy proceedings under his watch in 1992.

Overall, though, Icahn steered clear of the insider-trading scandals in the 1980s that snared such deal makers as Ivan Boesky and Michael Milken.

Icahn, who remarried after a 1999 divorce and has two grown children, guards his privacy and donates millions of dollars to charity with little fanfare. He has given to hospitals, universities and opened a temporary home for single mothers and their children in the Bronx. Near that shelter, he also is spending $4 million for a new charter school, because he’s a strong advocate of privatizing grade-school education.

He sometimes can be spotted making sports bets in Las Vegas, is an avid tennis player, breeds racehorses in Kentucky and collects rare paintings. But he prefers reading or watching movies at home to the cocktail-party circuit. While staying at his summer home in East Hampton, N.Y., “it’s not at all unusual to see just Carl, Gail (his second wife) and his son having dinner together,” Ross said. “He is a very private person.”

As a player in the markets, though, Icahn probably will remain in the public eye for years to come, Ross predicted. “I don’t think there’s any reason why he would stop,” Ross said, noting that another billionaire investor, Warren Buffett, 72, still is active.

“Investing is one of the few activities that you can really continue, as long as the mind is as alert as Carl’s,” Ross said. “And he’s more alert than most 35-year-olds.”