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Investor's Doubt Icahn's Latest Deals

Carl Icahn has taken position in three new companies lately. Each, in classic Icahn style, have become the subject of possible deals. And each has seen major share sell-offs by much more than the broader market.

Investors are once again snubbing Carl Icahn.

Three companies in which Icahn has recently taken positions, and which have become the subjects of possible deals, have seen shares selling off by much more than the broader market. For example, shares of Commercial Metals are off more than 2.3 percent today and are now down more than 4 percent in two days of trading, to around $14.08. The broader market was off by closer to 1.5 percent on Thursday.

On November 28, Icahn Enterprises LP, which owns nearly 10 percent of the shares in Commercial Metals, made a hostile $15 per share offer for the company. That day—when the stock was trading at roughly Thursday’s closing price—S&P Capital IQ analyst Leo Larkin had lowered his rating on the stock to Hold from Buy, based on valuation. 

In a follow-up interview, Larkin says that because the steel maker gets a big portion of its business from non-residential construction, he believes the company will lag other steel makers that get more of their business from general industry (such as from the auto makers), which are performing better. He also concedes that he gave no weight to the fact that Icahn made an offer or has a significant stake in the stock. “His record is a little bit spotty,” he says. He adds that if the $15 offer was truly low, other potential buyers would have stepped up with their own offer. This is especially surprising to him since the steel industry in general is suffering from a bit of over-capacity and is ripe for consolidation. “I don’t get a sense of excitement” in the industry, Larkin adds.

Meanwhile, S&P’s credit analysts expressed their own caution about Commercial Metals’ debt in light of Icahn’s bid. In a note to clients, it expressed fear of possible shareholder pressure to engage in some sort of leveraging transaction. Noting that the ratings on Commercial Metals were placed on CreditWatch with negative implications on November 29, S&P asserts: “In our view, Mr. Icahn’s recent activism causes uncertainty regarding the company’s business and financial risk in response to the bid. We believe that Icahn’s actions have the potential to cause the company to adopt a more-aggressive financial policy.”

Shares of truck makers Navistar and Oshkosh, in the meantime, are down as well, despite Icahn’s public push on Tuesday for the two companies to merge. Icahn, who has launched a proxy fight with Oshkosh, said on CNBC, “I definitely think it would be a good merger. I think there would be a lot of synergy.”

In a follow-up regulatory filing, Icahn stressed that synergy driven consolidation will be a primary method for defense contractors to drive earnings and cost savings in the future.

Investors, however, don’t seem to be holding their breath waiting for a deal. Shares of Navistar were down nearly 4 percent on Thursday to $37.38, and are now off more than 7 percent since last Friday. Oshkosh shares were down about 3 percent on Thursday to around $20.55.

It did not help that on Monday morning independent sell-side analyst Ronnie Moas of Miami Beach-based Standpoint Research downgraded Oshkosh to Hold from Buy when it was trading at $21.51. In a note to clients, he pointed out that Oshkosh’s stock was up 18.8 percent since it was recommended in August, beating the S&P 500 by 1150 basis points and that he wanted to reduce his high beta exposure. He added: “I am disregarding any takeover speculation surrounding this Icahn name.”

In a follow-up interview, Moas said he was afraid the stock would drop more than the market in an overall selloff. He concedeed the stock could surge again in a bull market, but it would strictly be due to speculation. He also said he did not analyze the possibility of a merger between Oshkosh and Navistar and stressed he “disregarded the Icahn noise.”

Moas adds: “For every 10 names in the news with takeover speculation, you may get one deal. It is a losing bet to stay in the names since the other nine times the stock drops are a spike.”

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