Icahn ‘Short’ Sale in ’04 Ends in Loss
Billionaire Carl Icahn lost at least $66 million when shares of a company he bet against soared, a regulatory filing indicates.
American Real Estate Partners, Icahn’s publicly traded holding company, “shorted” 2.5 million shares of a company in bankruptcy in late 2004, according to a filing with the Securities and Exchange Commission.
Icahn borrowed and sold shares in anticipation they would fall. Instead, the stock climbed.
Icahn declined to identify the company he shorted, but in an interview he said he had bet against stocks of wallboard companies because they were “ridiculously” overvalued and poised to fall as the housing boom ebbed.
USG Corp. is the only publicly traded wallboard company to declare bankruptcy since at least 1986, data compiled by Boston-based Bankruptcy.com indicate.
USG shares fell as low as $2.80 after the company filed for bankruptcy protection in June 2001 but have since climbed steadily higher. The shares fell $5.75 to $106.25 in trading Thursday.
“I made money doing big short positions, but you have to have belief in your position,” Icahn said, citing an earlier bet against insurer Conseco Inc. that earned almost $128 million after being down at least $30 million. “You have to have the capital and staying power to keep shorting.”
In a short sale, an investor borrows shares and sells them, hoping to repurchase the securities at a lower price and return them to the original holder, making a profit from the difference.
Icahn, 70, built a fortune, estimated at $8.5 billion by Forbes magazine, in part by earning a 53% annual return on invested capital from January 1996 to May 2004, according to marketing materials for a hedge fund he runs.
Chicago-based USG is a 105-year-old company formerly known as United States Gypsum Co. USG’s climb was buoyed by an increase in new-home sales and congressional moves to limit asbestos liability.
Most bankruptcies wipe out existing shareholders.
“There has never been a circumstance where a stock in bankruptcy has appreciated as much as USG,” said David Barse, chief executive of Third Avenue Management, which holds a majority of the wallboard company’s bonds. “Nothing even close.”
Berkshire Hathaway Inc., the holding company run by billionaire Warren Buffett, acquired a 15% stake in USG during the fourth quarter of 2000, when shares were trading at an average of $17.51. The stock has increased sixfold since then and Berkshire’s stake has a market value of about $711 million.
Icahn, a veteran corporate raider from the 1980s and a self-described shareholder activist, abandoned a bid in February for control of the board of New York-based Time Warner Inc., the world’s biggest media company.
