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Icahn Just Can't Pass Up a Deal

The billionaire investor still is stirring debate over the tactics he uses in the pursuit of profit.

November 03, 2002|James F. Peltz | Times Staff Writer

Customers swear by the steaks at the upscale Morton's of Chicago restaurants. But that hardly explains why investor Carl Icahn, who has waged financial war for two decades with the giants of Corporate America, fought a months-long contest this year to buy a chain with just 65 locations around the country.

In losing another suitor, Icahn walked away with just less than $1 million in profit on his Morton's stock -- pocket change for someone whose net worth, according to Forbes magazine, is $5.8 billion.

So why would Icahn, now 66, spend time and energy jousting for such a small prize?

Some say it's because Icahn was personally motivated in this case; a family acquaintance had made an earlier offer for Morton's with backing from Icahn.

But the larger reason is that the size of the gain no longer matters to him.

More than a decade after he became fabulously rich and famous -- some say infamous -- as a top corporate raider in the 1980s and '90s, Icahn still is battling CEOs, other investors and the changing tides of financial markets simply for sport. In doing so, he keeps alive the debate over whether his actions ultimately benefit companies, their employees and their investors by challenging a firm's management and efficiency, or whether his deal-making wreaks unnecessary havoc for those caught in his pursuit of profit.

Either way, "I just enjoy doing it ... a good deal," Icahn said in an interview, adding that he has no plans to stop. "It's an intellectual challenge to get it done right."

Whether it's buying cheap stocks and bonds of a distressed company, shorting inflated stocks or launching yet another hostile bid for a business, New York-based Icahn focuses on unearthing hidden value.

Savvy, tenacious and ruthless once he fixes on a target, Icahn cares little whether his investments are perceived as sexy or dull.

Making money is what counts -- not because he needs it, but to keep score.

"He really does like the struggle," said Wilbur Ross, head of investment banker W.L. Ross & Co. in New York, who has been both an ally and opponent of Icahn's various deals over 20 years. "He's a brilliant guy, and he's also the most competitive person I know, bar none."

Just ask Teddy Forstmann, one of the nation's most successful investors. Two weeks ago, a group led by his firm, Forstmann Little & Co., ceded control of Reston, Va.-based XO Communications Inc. to Icahn after a battle that lasted for months. Icahn mounted his bid for the ailing provider of phone and Internet services to businesses after buying about $500 million of XO's bank debt.

Forstmann won't comment publicly on his tussle with Icahn. The fight nonetheless illustrates how Icahn is starting to exploit the meltdown of the telecommunications industry.

"I'm still bearish on the stock market in general," Icahn said. "But there are certain industries that have opportunities such as telecom. However, you must pick the right telecom."

Icahn won't get more specific. His actions still move markets, and he's not about to tip his hand. He declined to comment on reports that he has been buying bonds of long-distance provider WorldCom Inc., but confirmed he made a quick investment in another scandal-plagued company, Tyco International Ltd., and then sold it for an unspecified gain. Icahn also bought a big chunk of bonds in auto parts maker Federal-Mogul Corp., which is in bankruptcy proceedings and facing asbestos-related litigation.

There's also recurring speculation that Icahn will buy another company in Las Vegas, where he's already made bets on relatively cheap properties by purchasing control of the Stratosphere and the Arizona Charlie's hotel-casinos. He also controls the Sands Hotel & Casino in Atlantic City, N.J.

But Icahn, true to form, has been deliberate in Las Vegas. Although there are other troubled properties that could be possible targets, Icahn hasn't stepped forward. "He's very careful," said Anthony Curtis, publisher of the Las Vegas Advisor, a newsletter that tracks Sin City. "He'll be willing to stay where he's at before he'll get into a bad deal."

Elsewhere, though, Icahn has been busy the last two years. He emerged victorious from a bitter, five-year fight in which he pressed RJR Nabisco Holdings to split its tobacco and food groups, a campaign that netted him nearly $1 billion in stock profits. (The Nabisco unit ultimately was sold to Philip Morris Cos.) As the stock market's bubble was bursting, Icahn made a killing by heavily shorting stocks such as AOL Time Warner Inc., Internet travel site Priceline.com and battered insurer Conseco Inc., which now trades for pennies a share. To short a stock is to bet that its price will fall.

He also threatened, before changing his mind, to shake things up at companies as big as General Motors Corp. and as small as Visx Inc., a Santa Clara-based maker of lasers used in eye surgery.

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