On Friday, Bloomberg News reported that, according to credible sources, Carl Icahn had taken a sizable position in Caesars Entertainment. Shares of Caesars soared on the news.
They call it the “Icahn Lift.” When Icahn takes a big position in a stock, its price immediately rises as retail investors follow his lead. As a result, existing shareholders love to see Icahn take a position in a stock they own. For companies, however, Icahn’s ownership can be cause for concern.
Icahn has been an activist investor for more than 40 years. In that time, he’s made billions – often at the expense of the companies he targets. He was instrumental in sending Trans World Airlines into bankruptcy after taking the airline private in 1988. Icahn had TWA take out over $500 million in new debt, primarily to give himself a $469 million payday. The airline never recovered from its mammoth debt burden.
Even when he isn’t classically raiding a company, Ichan can create enough chaos that companies pay him to go away – a strategy called greenmailing. Although, Icahn’s latest investment target may be more welcoming. After all, Caesars and Icahn have had a successful relationship in the past.
The last time Icahn owned shares of Caesars, he helped orchestrate its successful merger with Eldorado Resorts. It was a particularly dicey time for Caesars – and a nerve-racking time for mergers of any kind. Eldorado made its bid in June 2019. But by the time the deal was set to close, the pandemic was in full swing. Casinos were closed. Banks weren’t lending. Yet, through Ichan’s persistence, the deal subsequently closed in July 2020.
Icahn, himself, has stated his current Caesar’s stake is not meant to be disruptive. “There’s absolutely no activism contemplated in Caesars,” Icahn told Bloomberg. “A number of years ago we were instrumental in putting Caesars and Eldorado together. Our opinion of Tom Reeg as CEO was very high then and continues to be high at this time.”
Before the disclosure of Icahn’s stake, Caesars stock had been struggling – down roughly 30% year-to-date. The casino operator’s Q4 2023 earnings disappointed Wall Street analysts. Caesars’ Q1 2024 results weren’t much better. There is a well-worn market adage, advising investors to “buy low, sell high.” And Icahn certainly has a history of doing just that. So, Icahn’s stake just could be one of opportunistic timing. But in any case, this “Ichan Lift” came at a good time for Caesars and its existing shareholders.
