Icahn receives 2 directors appointed to vehicle equipment business Dana. What’s ahead

Carl Icahn speaking at Delivering Alpha in New York on Sept. 13, 2016.

David A. Grogan | CNBC

Company: Dana Inc. (DAN)

Activist: Carl Icahn

Share Possession: 9.91%

Average Expense: $20.95

Activist Commentary: Carl Icahn is the grandfather of shareholder activism and a real pioneer of the approach. Even though he is not slowing down at all, he not too long ago attained an arrangement with his son, Brett Icahn, to rejoin the firm as the eventual successor. Brett designs to utilize his father’s favored technique of pushing corporations to make adjustments designed to boost their inventory rates, even though he has not ruled out welcoming bets much too. This is not a departure from the tactic Carl has succeeded with for several many years. He can be helpful (i.e., Apple, Netflix) or he can be confrontational (i.e., Forest Labs, Biogen), generally it relies upon on the reaction of administration. Brett is an remarkable activist trader in his have appropriate, not simply because he is Carl’s son, but for the reason that he has shown a prolonged monitor history of extremely effective activist investing. The Sargon Portfolio he co-headed at Icahn at 1 time totaled all around $7 billion and involved extremely profitable investments in firms these as Netflix and Apple. The Sargon Portfolio appreciably outperformed the market place with an annualized return of 27%. Even so, prior to that Brett begun in 2002 with Icahn as an analyst and was afterwards dependable for strategies like Hain Celestial (280.3% return compared to 46.7% for the S&P 500), Acquire Two Interactive (81.5% vs . 64.5% for the S&P500) and Mentor Graphics (106.4% vs . 79.4% for the S&P 500).

What’s Happening?

On Jan. 7, 2022, Icahn and the business entered into a Nomination and Standstill Settlement pursuant to which the corporation appointed Brett Icahn and Gary Hu (both portfolio supervisors at Icahn Funds) as administrators to the board and agreed to involve them on their slate of director nominees for election at the 2022 once-a-year conference. Icahn agreed to abide by selected standstill provisions right until he no extended has administrators on the board.

Behind the Scenes:

Icahn has huge expertise in the automotive business, now owning and functioning Icahn Automotive, which makes up 28% of the complete web product sales of Icahn Enterprises (“IEP”). Icahn Automotive was designed, in substantial section by means of acquisitions. Commencing as an investor in Federal-Mogul in 2001, Icahn eventually obtained the complete firm by 2017. Icahn also obtained significantly all the U.S. automobile components assets of Uni-Decide on, Inc., a top automotive elements distributor for domestic and imported cars Pep Boys – Manny, Moe & Jack, a main aftermarket company of automotive company, tires, components and equipment throughout the U.S. and Puerto Rico the franchise companies of Precision Tune Auto Care and American Driveline Systems. Icahn ultimately marketed Federal-Mogul to Tenneco in 2018 for $5.4 billion, and now Icahn Automotive is made up of Pep Boys automotive aftermarket retail and services chain, Car Moreover automotive aftermarket parts distributor, Precision Tune Automobile Treatment owned and franchised automotive service facilities, and AAMCO Full Car Care franchised company facilities. The corporations of Icahn Automotive complete over 22,000 personnel, above 2,000 organization-owned and franchise locations and 25 distribution facilities during the U.S., Canada, and Puerto Rico.  

Icahn is not only educated about this market, but he also has encounter with this enterprise. In March 2006, Dana declared Chapter 11 bankruptcy ,and Icahn obtained somewhere around $101.25 million of the firm’s then-$2.25 billion unsecured personal debt with the intention of getting an “energetic participant” in the individual bankruptcy circumstance. Icahn again grew to become an fairness owner in the fourth quarter of 2020 and submitted a passive 13G on Feb. 4, 2021 with a 7.5% ownership. His intent since improved from passive to energetic and he submitted this 13D upon getting two board seats at the company.

There is no question that Icahn’s two portfolio administrators, Brett Icahn and Gary Hu, will make benefit-added administrators as they not only have market practical experience, but are shareholder administrators – both on its individual is useful for a board member, but it is extremely unusual to have a director with both of those people attributes. So, if that is all Icahn does from an activist standpoint in this financial commitment, he need to be creating significant worth for shareholders. 

Nevertheless, it is difficult to ignore the elephant in the room. Icahn built his automotive market on acquisitions, and Dana appears to fit in really nicely in IEP’s automotive organization. Additionally, IEP states that its technique in its Automotive section is to continue to increase its business components gross sales and its automotive assistance company, and it will continue on to consider strategic alternatives in its automotive aftermarket areas organization to optimize worth. When Icahn obtained Pep Boys, he also mentioned: “We think that with our plentiful sources and awareness of the industry we will be ready to grow this organization and take edge of consolidation opportunities, therefore benefiting consumers, producing companions and employees, as properly as our shareholders.” So, it is hard to believe that that Icahn is not at minimum considering Dana as a likely acquisition or merger candidate. Even so, as an trader who has generally prioritized corporate governance and shareholder value, we expect that if he does obtain the company, it will only be immediately after a sales procedure by an unbiased financial investment bank and an arms-size negotiation in which the Icahn administrators recuse themselves.

Ken Squire is the founder and president of 13D Watch, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Dana is owned in the fund.

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