Open Letter to Carl Icahn

November 12, 2014

Dear Carl,

You have the best track record of any living investor: 27.5% annualized returns over the past 52 years.

You even made money in an extremely difficult period for stocks; between 2000 and 2014, you averaged a 22% annualized return, versus a 3.8% return in the S&P 500. That’s nearly 20 percentage points of outperformance, annualized, during a period that included one the worst stock markets in our lifetime. This is outstanding.

That said, while you’ve had great recent success with high-profile stocks, other areas of your portfolio, particularly in the energy sector, have been very poor performers. Today we are writing to respectfully challenge you to execute your game plan and create value in the uncharacteristically weak spots in your portfolio.

Carl, you’ve stated often that you are an advocate for the little guy. You’ve even gone so far to say small investors should follow your lead into the stocks you buy. You’ve laid out specific analysis to support the case, demonstrating how easy and powerful following your lead can be. According to your study, over the past five years, if any investor had bought an Icahn-owned stock the day that you (or your team) joined the board of the company, then sold it the day the board seat was exited, that investor would have made a 27% annualized return.

That means your “board seat effect” could have turned $30,000 into just over $100,000 for the average guy. Moreover, within your analysis, these stocks were winners nearly eight out of every 10 times, when this condition of a board seat was met.

We agree completely with your premise. As you’ve said, “The little guy should be allowed to follow good investors without having to pay a fortune.”

We founded our research business,, on the same fundamental beliefs. And today, Carl, we have co-invested with you, following your lead into four stocks – each of which either you or your team have a board seat: Navistar (NAV), Nuance (NUAN), Transocean (RIG) and Talisman (TLM).

Carl, you paid $49 for your 6% position in Transocean; it now trades at $27.11. You paid $11.60 for your 6% position in Talisman; it now trades at $5.71. We estimate your price on Navistar is just over $32; you’ve built a 15% stake and held it for three years. It now trades at just $36.46. We estimate your average cost on Nuance at just over $18, for a nearly 20% stake. It now trades at $15.01.

As shareholders, we support you in your effort to create change in these companies, to unlock value. To be frank, given your mission to fight for shareholder rights and your record of executing against that mission, we expect success. Just as you hold the companies that you invest in accountable for maximizing the value of your shares, we hold you accountable to work on behalf of all shareholders to do the same.

We are frustrated that you have not spoken publicly about these energy investments and have made little progress toward your goals. You have over $2 billion of your fund invested in energy stocks, including Talisman and Transocean. We believe that it is time for you to get to work and start creating value in these stocks.

Energy stocks are selling at the most undervalued levels since the great recession. Transocean is near a 10-year low, selling well below its Great Recession price of $37. Talisman is at a 10-year low, selling below its Great Recession price of $6. And, as you know, oil prices are almost 100% higher than they were during the Great Recession — even following the recent oil price sell-off.

This underperformance isn’t just in the stocks we’re discussing (RIG, TLM), but is sector wide. The ratio of oil prices to oil stocks is below 1. The last time the ratio was below 1 was March of 2009 — at the depths of the global financial and economic crisis. There is no fundamental reason why these stocks should be selling for less than they were during the Great Recession.

We are calling on you, and your team, to take action.

We’ve heard your public voice on Apple (AAPL) and Netflix (NFLX). But we haven’t heard or seen the same type of effort and passion in the deeply undervalued stocks we are discussing.

We know you have billions of dollars of inspiration to turn the ship around on these stocks. Let’s look at some numbers on what it will take to right the ship.

You purchased Transocean back in January of 2013, and you got a board seat in April of 2013. You usually hold a stock for two to three years. You bought Transocean at $49. Based on the board seat analysis you’ve presented, Transocean should return 27% annualized. Within your typical holding period, we should expect to see Transocean up 61% from the date you won a board seat. That would put the share price at $72.50. Transocean is currently less than $28 dollars a share. That projects a 150% return in Transocean over the next six to seven months. Let’s get to work!

Next, your team received a board seat on Talisman Energy in December of 2013, when Talisman was $10.50. Using the same math from your board seat analysis, applying a 27% annualized return for every year you, or your team, has a board seat on a company, Talisman should be selling at $16.90 by next month. The stock currently trades for $5.00 and change. Carl, you have a lot of work to do in a very short time. This projects a nearly 200% return on Talisman by next month.

Obviously that target is highly unlikely. But over the next few months, we want to see progress toward the changes we know you can force, to begin the revaluing process of this stock. By December of 2015, your influence, based on history, should give shareholders a 340% return on Talisman, or $21.50 a share.

Carl, we think there is a simple formula for these stocks: You! We challenge you to get back to your activist ways. You and your team have seats on the boards of all four of these underperforming companies. Start creating value for us today. Force the CEO out. Force Nuance to sell itself to the highest bidder. Force Talisman to sell off its assets, piece by piece, to the highest bidder. Force Transocean to do the same.

You are the best investor on the planet because you have a simple playbook of buying stocks at deeply depressed prices, reforming troubled companies and selling for a huge profit. You don’t have a board seat on Apple. You didn’t have a board seat at Netflix. While those investments were successful, they represent a clear drift from your style.

By any standards, you have lost a significant amount of money on these stocks we’ve discussed. So get angry and fight. Fight for the little guy, just like you said you would do this summer. Shareholders are counting on you. And we know you are one of the few investors in the world that can do it.


William Meade and Bryan Rich