Carl Icahn Returning Funds to Limited Partners, Will Icahn Take IEP Private?

Icahn Enterprises L.P. (IEP)
On 3/8/2011, Carl Icahn decided to return all fee paying capital back to limited partners ($1.76 billion). In August 2007, two months before the market peaked, American Real Estate Partners, a public real estate and home fashion company majority owned by Icahn, acquired Carl Icahn's "interests in the management company and general partner of the Icahn Funds" for $810 million AREP depository units, and changed its name to Icahn Enterprises (IEP). At that time there was "$5.0 billion of third-party fee paying assets under management"! Currently Carl Icahn owns 92.6% of $IEP as of 12/31/2010 (via Yahoo Finance major holders). Icahn should take IEP private in the $20s, start a new $7 billion fee-based hedge fund, and go public again in a few years. Does IEP's investment in the Icahn Fund stay put?

His funds put up decent numbers in 2009 and 2010, 33.3% and 15.2% respectively (see below), but lost 37% in 2008. Here's a look at Icahn's bombs at Wall St. Cheat Sheet. Remember, he was "actively" trying to create value by restructuring boards and firing management. The macro environment trumped any kind of equity analysis and skilled activist investing, in my opinion. Since inception though (2004), Icahn Funds were up 106.9% (see below). Before I get to his investor letter, here are IEP's Q4 2010 results and valuation ratios.

"New York, NY – Icahn Enterprises L.P. (NYSE: IEP) reported revenues of $2,488 million for the three months ended December 31, 2010 as compared to $1,863 million for the three months ended December 31, 2009. Net income attributable to Icahn Enterprises was $82 million for the three months ended December 31, 2010, or $0.94 per LP unit, compared to a net loss of $1 million or $(0.09) per LP unit in the prior year period.

For the twelve months ended December 31, 2010, revenues were $9,119 million as compared to $8,605 million for the twelve months ended December 31, 2009. Net income attributable to Icahn Enterprises was $199 million for the twelve months ended December 31, 2010, or $2.35 per LP unit, compared to net income of $253 million, or $3.05 per LP unit, in the prior year period." read SEC Filing

Yahoo Finance IEP ratios on 3/21/2011: Trailing P/E (trailing twelve months): 15.09, Price/Sales (ttm): 0.33, Price/Book (most recent quarter): 0.86, Price/Cash (mrq): 1.0, Enterprise Value/Revenue (ttm): 0.76, EV/EBITDA (ttm): 5.74.

IEP Long Term...
From Icahn Enterprises L.P. 8K filing on 3/8/2011:

"Dear Limited Partner:

I am pleased that our funds have earned gross returns of 33.3% and 15.2% in 2009 and 2010, respectively, as well as returns of approximately 8.7% through February 2011. Despite our losses in 2008, since inception of our funds in late 2004 we have had gross returns of 106.9%.

While it may sound “corny” to some, the losses that were incurred by investors in our funds in 2008 bothered me a great deal more, in many respects, than my own losses. Perhaps this is because over the years I have become inured to dealing with large “paper” losses for myself. During 2008 and part of 2009, unlike many other funds, we did not impose “gates” on our investors that would have prevented them from withdrawing capital from our funds if they chose to do so. Therefore investors seeking liquidity did withdraw a fair amount of cash from our funds. Additionally, rather than liquidating positions that we believed in, we infused our own new capital into our funds which provided cash for withdrawing investors. As a result, fee paying assets now constitute only 25% ($1.76 billion) of total assets in the funds of approximately $7 billion.

While we are not forecasting renewed market dislocation, this possibility cannot be dismissed. Given the rapid market run-up over the past 2 years and our ongoing concerns about the economic outlook, and recent political tensions in the Middle East, I do not wish to be responsible to limited partners through another possible market crisis. After careful consideration of all relevant factors, we have determined to return all fee paying capital to investors.

Payments will be made in cash in April based upon values at March 31 and will be funded through cash on hand and borrowings under existing lines and not through the sale of securities in the funds. We expect that 95% of your March 31 capital balances will be returned by April 30, and that the balance will be returned within 30 days of completing the March 31 audit, which will not be later than June 30. However, if you would like to delay withdrawal please call us and we will try to accommodate you. Please complete and return the attached form on or before March 31. This form will be required in order to properly process your redemption.

I have appreciated all of your support over the past six years. Obviously based on the past 2 years and 2 months we are ending on what I consider to be a high note. I wish you much success with your future investments and hope that our paths will cross again. Please do not hesitate to call me now or in the future with any questions or just to talk.

We will be contacting you shortly to discuss the redemption. In the meantime, please feel free to contact Dana Witkin (.....) or Alex Chastain-Chapman (.....) at any time.

Very truly yours,

/s/Carl Icahn"

More articles:

Is Carl Icahn Bullish or Bearish About The Stock Market? - InsiderMonkey (they say he's bullish)

Icahn Fears Big Stock Plunge as Housing, Food, Japan Crises Worsen - MoneyNews (3/16/2011)

Icahn warns another downturn may lie ahead - (3/11/2011)

Why Icahn Is Closing His Hedge Fund to Investors - CNBC's David Faber

Icahn returns investors’ cash amid fears of downturn -

Icahn to Return Outside Money in Hedge Fund - DealBook

Icahn't hedge now - New York Post

*Soros Funds are investing Corvex Capital, a new "event-driven" fund founded by Icahn's former "right-hand man", Keith Meister. Icahn's former COO, Rupal Doshi, also works there. - DealBook.

Full disclosure: I don't own IEP