Billionaire Carl Icahn On Forest Labs, Navistar, Chesapeake And Risks To Stocks

Includes: CHK, FRX, NAV
by: Insider Monkey

By Shane Sokol

Billionaire Carl Icahn, perhaps the one American most identified as an example of an activist investor, appeared on Bloomberg TV's "Street Smart" earlier this month. Hosted by Trish Regan, he gave his opinion on several current economic themes and companies. He remarked on the detrimental effect some boards have by their inaction, the valuation and risks for the market, the outlook for M&A activity this year as well as updates on three companies he is a major investor in.

Boards of Directors

Frustrated with inaction in many public companies, Icahn said "The question is, where's the board?" Hoping for secular changes and more activist oversight by the board, he continued, "it is a little analogous to Chesapeake Energy Corporation (NYSE:CHK) where the board is just sitting there doing nothing for years. Or not doing what they should be doing, collecting a great deal of money. Allowing the CEO to get tremendous amounts of money and not holding them responsible. You have the duty of loyalty, the duty of care. Hopefully, these board members will be held personally liable. When they are held personally liable, sometimes they wake up. That's where I hope this is going to go in this country."

Forest Laboratories, Inc. (NYSE:FRX)

Forest Laboratories recently posted quarterly results nowhere near what the company has been used to for so long. Its top-selling medicine, Lexapro, lost patent exclusivity, which contributed to a decline in earnings per share of 77 percent for the quarter ended in June.

Battling Forest Laboratories' call to ignore his push for his board nominees, Icahn commented on management's letter to shareholders released earlier this month. In that letter, Chief Executive Officer, Howard Solomon warned "Icahn's slate has significant and obvious conflicts and entanglements that compromise their independence and ability to represent all Forest shareholders."

Responding to that criticism, Icahn had some of his own. "Howard Solomon, who I talk to, a nice enough guy, a friendly guy, but he said we would be a disturbance. I think we would be a disturbance to his plans. I think his plans are, again, swing for the fences, and to get his son as CEO. We would obviously stand up against that. That is why he does not want us on the board."

Not finished with that, Icahn accused much of corporate America as guilty, stating "There are good boards and good CEOs, no question. But there is no accountability. That is our problem right here. It is a quintessential example of what is wrong in corporate America, right here at Forest Labs."

Navistar International Corporation (NYSE:NAV)

On two days this month, July 23 and July 24, Icahn purchased 688,371 shares of Navistar International Corporation to bring his total holdings to nearly 10 million shares. This latest purchase pushes his total stake to 14.5 percent.

Seeming hesitant or possibly just holding his cards close, his criticisms were more muted. He stated, "We haven't really made a decision on what we're going to do there. It is different. Navistar is quite a bit different from a Forest or even a Chesapeake where the board just sat around. I believe the CEO was out there working and you can say honest or dishonest, but he was doing what he felt was right for the company. He came up with this new type of engine. Obviously, it has had problems. I do not think it is the same problem. It may end up that we have to do something, but it is different than a Forest Lab or a Chesapeake."

Chesapeake Energy Corporation

Behind only Exxon Mobil Corporation (NYSE:XOM), Chesapeake is the largest American producer of natural gas. Prices for natural gas are near 10-year lows causing falling revenues and turning profits into net losses for the company in the most recent quarter. Icahn has also been pushing for board member replacements, most recently getting his representative seated. Vincent Intrieri, who served for Icahn on other boards, joined the Chesapeake board late last month. Chesapeake agreed to replace four members with Icahn choosing one designee and Southeastern Asset Management appointing three as Chesapeake's largest shareholder.

Icahn believes the most pressing issue for Chesapeake is expense control, explaining, "What I think is going to happen there is that you will have to cut spending drastically. It is not like a country where you can print up money. Chesapeake cannot just take a printing press and print it out. They have to meet the gap problem that they have. But I think it can be done."

Stock Market Risks

The stock market has much to worry about and that's why Mr. Icahn believes prices are high now as the market has risen too high since it "fell apart in 2008 or 2009."

"Unemployment is very high. And you have problems, I think, with Europe. It is certainly not solved. The ECB is doing what the Fed is doing, but the Fed and the ECB cannot solve these problems alone from a monetary point of view. Western Europe is sort of a basket case at this time." Mr. Icahn did remark on his view that these problems will be solved, but there are a lot of things to worry about now that make stocks riskier holdings.

Mergers & Acquisitions

Bringing up several factors, including the previously mentioned high prices, there are many barriers to M&A which are creating a hostile environment. However, he mentioned, "There are a lot of good candidates that could be taken over. You need more activism. Activism is very tough. It looks easy, but it is extremely tough. You have all of these institutions; all these extremely expensive lawyers come in and throw everything at you, so you have to have staying power."

Disclosure: I am long CHK.

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