ACP: The Icahn Premium is Overdone - Barron's

Includes: BRK.A, BRK.B, IEP, LEA
by: Judy Weil

Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

Another American Real-Estate Bubble by Andrew Bary

Summary: Carl Icahn's investment vehicle American Real Estate Partners (NYSE:ACP) $110 shares are triple February 2006's value, or 1000% higher than 2003. Its book value/share rose 150% to $50 concomitantly through outsized gains like $1 billion profit on its recent $1.3b Nevada gaming operations sale and $600 million in liquidating its energy portfolio. Even Icahn's hedge fund gained 30% in 2006. Still, investors are paying a steep 69% premium for the Icahn touch: ACP's $4b in cash and securities, $700m controlling stake in towel manufacturer Westpoint International and real estate holdings generously valued at $500m equals $5.3b. Subtract $1.3b in debt and options, and you've got $4b or $65/share. Investors say Icahn's the next Buffett, but Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) premium is lower and its assets are cash cows. ACP generated $12 profit/share, but offers little operating income, a slim 0.4% dividend, and investors pay hefty capital gains on profits. ACP's next deal is to buy auto-parts manufacturer Lear (NYSE:LEA) for $36/share, or $5.2b. Opposing shareholders say the deal undervalues Lear. Should ACP investors stick around to see if Icahn wins again? Barron's says ACP is overvalued-- even multi-billionaire Icahn's effect isn't worth that much.

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ACP 1-yr. chart:

ACP Investment