Billionaire investor Carl Icahn wants to boost his existing stake in Federated Department Stores by as much as $500 million, which sent the retailer’s stock almost 2 percent higher Wednesday in heavy trading.
Federated said on Wednesday that Icahn notified the company that he plans to seek clearance under the Hart-Scott-Rodino Antitrust Improvements Act to acquire $113.4 million to $500 million worth of additional shares of Federated. Icahn owns about 2.1 million shares, or 0.37 percent of the company. Adding $500 million in shares would bring him close to 3 percent ownership.
Federated shares climbed 77 cents, or 1.85 percent, to close at $42.42 in New York Stock Exchange trading. Almost 11.4 million shares changed hands, compared with an average trading volume of 4.4 million. In intraday trading, shares hit a 52-week high of $43.90, representing a 5.4 percent gain over Tuesday’s close of $41.65 for those who sold at the high.
“We’re glad Mr. Icahn sees value in our company and is increasing his investment,” said Terry J. Lundgren, Federated’s chairman, president and chief executive officer, in a statement. “While our stock hit an all-time high four times in the past three weeks, we continue to see significant opportunity ahead as we maximize the Macy’s and Bloomingdale’s brands nationwide.”
The disclosure of Icahn’s intent had some investors wondering about his true interests in the retailer because of his past investments and reputation for being an activist shareholder and corporate raider. They cited his skirmish with Time Warner and his $703 million purchase of bankrupt Westpoint Stevens, the maker of Martha Stewart sheets and towels.
Several veteran portfolio managers at institutional investment houses, however, said they believe Icahn’s intent is simply an investment in a good firm. Others in the retail sector agreed.
Walter Loeb, a retail consultant of the firm that bears his name and who once worked as a retail analyst on Wall Street, said, “I think he just sees value in the company, the potential for Federated once it has merged Federated and May Co. stores successfully and has a more centralized operation. He sees for the long term how Federated can be a lean company with improved margins from better markup because of reduced competition.”
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Loeb said the numbers don’t quite work out yet regarding Icahn having any significant input in Federated’s operation. “Federated has about 553 million shares outstanding. Icahn’s got 2.1 million shares of the company. He has some ways to go before he can make an impact,” he said.
Emanuel Weintraub, a retail and apparel consultant of the firm that bears his name, said: “It seems like he thinks that the company is going to dominate the retail space because of Macy’s. I don’t see any flaws or something people could pick apart and say there is a fundamental flaw in the business model at Federated. [This is not like] dealing with a troubled company. You are dealing with a company that can execute well and is getting better…this just might be an investment in a company that has a very strong ability.”
Icahn has held stakes in retail and apparel firms. He invested in Perry Ellis International, with the bulk from his holdings in Salant Corp., which was later acquired by Perry Ellis.
In an exclusive interview with WWD in 2003, Icahn said there were some good investment opportunities in retail and apparel. Later that year, he upped his stake in Tropical Sportswear International Corp. to 920,000 shares, or 8.3 percent, of the common stock in May from 7.3 percent stake a month earlier. Earlier this year Icahn increased his stake in BJ’s Wholesale Club, which was a buyout candidate, although some institutional investors, who requested anonymity, believe that Icahn’s holdings in BJ’s is purely an investment play.
Icahn, who was raised in Queens and earned his reputation as a raider following his hostile takeover of TWA in 1985, has met with his fair share of hits and misses on the proxy battlefront. His more recent ventures include Time Warner and Blockbuster. At Time Warner, he led a group seeking to break up the company into four firms but later agreed not to contest the reelection of Time Warner’s slate of board members at the 2006 shareholder’s meeting in exchange for an agreement by the company that it would buy back up to $20 billion of stock and nominate more independent board members.
“We want these assets to be productive. We buy them. We own them. To say we care only about the short term is wrong. What I care about is seeing these assets in the best hands,” Icahn once said.
As for plans for companies that he holds a stake in, Icahn once said, “We’re not about liquidating companies, but if you do that, why is that terrible? We’re not blowing up the factories. The person who buys it should be able to make the asset more productive.”