By Jacob Wolinsky. Originally published at ValueWalk.
Following is the unofficial transcript from a CNBC exclusive interview with Icahn Enterprises LP (NASDAQ:IEP) Chairman Carl Icahn on CNBC’s “Closing Bell: Overtime” (M-F, 4PM-5PM ET) today, Tuesday, March 22nd. Following are links to video on CNBC.com:
Billionaire Investor Carl Icahn Says There ‘Very Well Could Be A Recession Or Even Worse’
Billionaire Investor Carl Icahn Say He Doesn’t Know Whether Fed Can Engineer A ‘Soft Landing’
Billionaire Investor Carl Icahn Says He Doesn’t Think He’ll Walk Away From Southwest
Part I
SCOTT WAPNER: Now to one of the world’s best ever investors billionaire, Carl Icahn is with me live for an “Overtime” exclusive. Welcome to the new program, Carl. It’s good to have you on
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CARL ICAHN: Good to be on Scott. Good luck on it.
WAPNER: Thank you very much. I wish we were seeing your face but we’ll we’ll take you however we can get you. And it is really the trillion-dollar question, Carl, of where the market goes from here and I think it pretty much boils down to whether you think the Fed can engineer a soft landing. Do you?
ICAHN: Yeah, I really don’t know if they can engineer a soft landing or not, but I sort of agree with with Eric there that I think we do have a lot of trouble ahead. When it happens, so I’ve told you this many times, on the short term, I don’t think anybody can really predict it. I think there’s just too many variables in this type of a market. But one thing I did learn many years ago, don’t fight the Fed. Now the Fed I think pretty much has turned and when you don’t have the Fed put that’s a whole new dimension that’s brought to this market and you have a lot of people in this market, a tremendous amount more than I’ve ever seen, that have no idea what they’re doing. I mean it’s, you know, the market is not a gambling casino completely. There, there are people in this market that do have an edge and you have so many people out there that really are gambling. So I think there’s going to be a rough landing. That’s what I think but that’s not my area of expertise really, you know, I look I look for these companies that are tremendously undervalued and where we can bring in activism and where we can get that big edge. And so I just learned it’s very hard to predict it, but I do think in the long run—
WAPNER: But look, you’ve seen, you’ve seen this movie before in some respects and I know you’re a movie buff and in your heyday, Paul Volcker had to do what he did to crush inflation. Do you think, do you have confidence that Jay Powell is up to the task?
ICAHN: Well, I think he says he is and I think you have to do it. I don’t think there’s a choice. Inflation is a terrible thing when it gets going. You can’t get that genie back in the bottle too easily. We saw it in the 70s, we saw what happened. And I think at this point, we have with supply chain problems and because our companies are so badly run with many exceptions. We really don’t have that supply. In the last 20 or 30 years, you had this through the 80s and 90s, you had cheap goods coming in from from the far east, from China, for sure and even from Russia, so you got that great advantage for our society. People would take the dollar and people would use that and so all these countries wanted the Yankee dollar and as a result, you really had cheap goods. And I think those days are over now, and I, you have this war going on now which adds another problem to your inflationary picture so I but you know what that’s not my exper— it really isn’t. You know?
WAPNER: No but you have, look, you have positions in a large swath of American business. So, you see things that others just don’t have the vantage point to do coupled with the experience you have from the decades you’ve been doing this. Do you fear that we’re heading towards a recession because that’s going to impact the kind of investments that you either have or the ones you may make in the future?
ICAHN: Yeah, look, I think there very well could be a recession or even worse. I really think the one thing that I do have experience in and I will tell you, sadly, that are companies we sit on a lot of boards, I don’t, I don’t but I have delegates on those boards. And some are good, some are fine. But when you get to understand what these boards do, the system, the system is needing fixing. They’re really are, there’s no accountability of corporate America. You have some very fine companies with some very fine CEOs, but far too many that are not up to the task that I think is going to be necessitated. So I have that experience, I guess. And then I tell you this, I have kept, I think we would have done a lot better, but I have kept everything hedged for the last few years and I think now that we do have it, we have a strong hedge on against the long positions that we try to be activists in and get that edge. So that’s the way I look at it, but I am, I am negative as you can hear. Short term, I don’t even predict. I just don’t think—
WAPNER: But I mean, you said it though, you know, you you have been predisposed to be negative for the last few years in the market. You’ve taken that view. You had once talked about, you know, your worries that high yield would blow up at some point. Do you share those worries today or have you moved past and inflation now is the primary worry that you have and all of the implications negative for sure, that come with that? What’s the one area of the market you’re most concerned about if there is one today?
ICAHN: Well, we have a very large position on shorting the wall through the CMBX, through a derivative and that whole market is a huge market. I think it’s got a lot of, a lot of the market itself I think is manipulated to some extent. And we’re, you’re going to be hearing from us in that area. But that is an area that I think has problems and certainly in the B and C malls and in other real estate. I mean, you can’t ignore the fact that and I don’t know if this is a change that will continue but you you don’t have people go into offices all the time anymore, obviously. And I think that is going to militate against the real estate area perhaps. But I mean, there’s a lot of different areas that we go into, we just find companies that we feel are undervalued like for instance now we’re in a fight for Southwest Gas Holdings Inc (NYSE:SWX), it’s a utility, Southwest Energy.
WAPNER: That’s Southwestern Gas and you’ve been, you’ve been embroiled in a pretty good battle with them. The latest news of course is is you raising your tender to $82.50 from $75. They say they’ll review it. Do you have any indication of whether they’ll accept it?
ICAHN: Yeah, I don’t think they will. But you know, that’s the quintessential example of what’s wrong in corporate America. I mean, you really don’t have accountability. I mean, here’s a company that has for seven years since this guy has been CEO, the company’s only up I guess 10% while its peers are up 40% or 50% of the stocks. But worse than that, they they really the agenda to that company, and many in fact, is not on the same incentive program as a shareholder and they fact, they, the board owns very little stock. We think the stock is worth you know, from 114 to 160 something in that in that area and so the problem you have there is very literally just poor management. I mean, one asset, got the management out of there and stopped empire building, you would get a much better return in the market. You would be able to, in a utility, in a utility, you tend to rate base and you get a multiple on it in the market. And in this case, the multiple is very is only like 1.2 and it should be, and the peer group is about 1.7. Now, that’s a major move. So this stock was selling when we bought in the 60s, I think it’s up mostly because we’re there you know, making our tender. So we find companies like that and we hope that we can have an influence on it.
WAPNER: So let me ask you this. I think we learned from a recent documentary that is is airing about you how fierce you are as a competitor. But also when you know that maybe it’s time to walk away. Is there any scenario here in which you would would just walk away?
ICAHN: Yeah, no, I don’t think so. I think here we are here to see tender works out. I mean the shareholders have a simple option really. They vote for us and take the tender offer or basically they don’t take the tender but vote for us and if they vote for us, we’re going to clean up that company as we’ve done in the past for many companies. But in this company, I really think it’s a sort of simplistic thing. You can’t empire build and you have to stop the SG&A from growing and growing. Success is there over the last 6, 7 years. The stock hasn’t really gone up but SG&A has gone up 37%. I mean, he’s been criticized by the reg agencies quite a bit. And I’m not saying he’s a bad guy, I just say that I think he’s well over his head and I don’t think he understands that there are people he has to report to. The board certainly doesn’t hold him responsible. But if you simply look at this company, for instance, on the one hand, they will tell you that my bid when I made $75 or $82, I’m sure they’ll say that it’s inadequate. And yet they put themselves in a position that they have to sell a billion dollars, well you’re saying that they have to sell a billion dollar of equity and—
WAPNER: For $65.
ICAHN: He was sure, when he said that, it was $62 so he’s playing it at $65. So he said why did, I’m going to have to sell $65 of equity I put you shareholders in this position that I have to sell it because he made a terrible acquisition just recently. And so on the one hand he says that and on the other hand he says, well, you’re at $75, shareholders don’t take it because it’s inadequate and he’s probably going to say it’s inadequate at $82.50 I would imagine.
WAPNER: Do you foresee a scenario in which you would go higher than $82.50?
ICAHN: Yeah, I’m not gonna discuss that on TV. I’m not gonna discuss that on your program. Well, you know that but you have to ask, right?
WAPNER: Of course, I don’t like to spend other people’s money either but I do, I do have to ask.
ICAHN: Right.
WAPNER: Hey Carl. Do me a favor, sit tight if you would. I’m going to take a quick break. We’re going to come back and we’re going to talk a lot more with Carl Icahn about some of the other positions he has in his portfolio. We’re back with this “Overtime” exclusive in two minutes.
Part II
WAPNER: Alright, we’re back with our “Overtime” exclusive, billionaire investor Carl Icahn joining us today on the phone. Let me ask you one more question if I could, Carl, about Southwestern, and then I’m gonna move on to some other topics that I would like to cover. What’s the end game? How’s it, how’s this all gonna play out? It’s just simply going to come to the proxy vote and it’s that’s going to be the end?
ICAHN: Well, I hope so. I can’t speak for what the company is going to do, obviously. But I do think it’s time that shareholders get the right to choose what they want. I mean, it’s a clear it’s a clear option for them and I don’t think the company has the right to tell we’re not going to let you do it. And they did put a pill to stop it. But, but that’s not a condition in our minds anymore because the shareholders vote them out, the new board who are basically independent but, you know, we I haven’t even met the guys of the new board but they’re all responsible guys. I know the utility business so basically, the pill would be thrown out and they would have a chance to collect their $82.50 or stay in a company that I think will be infinitely better managed than it is today with a board that does know the business and does care so I’m hoping it comes to that and I’m hoping that we we went in I think we will because I don’t know why a shareholder should take the third option which is keep these guys and so this is where I hope it ends up. So we hope, we hopw to buy it. Look I obviously the company has other choices here and so I don’t think they’re ready to certainly say well go ahead, shareholders and throw us out. But I really think that the shareholders I mean, at least every shareholder that we talked to feels they’ve done a terrible job so—
WAPNER: We’ll follow it, we’ll follow it and see what the endgame is. I mean, the stock is up two and a half percent in “Overtime” here as you’re talking about it. Let me move on to OXY. You recently sold your entire position. Why?
ICAHN: When you say sold it I have had that company for several years. And I do believe that the company is a good company. It’s operationally, Vicki Hollub has done a good job. Steve Chazen who’s the chairman who came in to sort of save it when I still think the acquisition was very badly ill-timed and what have you but I’m happy that you know we had a big loss in it when we bought it because we never believed that the board would allow that acquisition to go through. But but now, you know, it’s really a bet on oil prices and oil has gone up quite a bit and to be really looking at it before, before the this war with Ukraine you know oil I believed and I’m no expert on it but just listening to experts on it, I believe that oil was was fully priced. And we’ll see what happens. But you know, it’s all it’s all dependent on what the government does, too. I mean, the government certainly has a lot to blame for these very high prices in gasoline and you know, you can’t tell a industry you know we’re going to punish you if you go look for oil, and then come around and say please, please go, please go and explore now and spend all that money for exploring and then you have members of Congress saying we’re gonna tax you, we’re gonna put a super tax on you. However, however, like all things, things go way up and way up very quickly. They come down and that’s not my business. I mean, my business is really be an activist. So there’s no activism done at Occidental anymore.
WAPNER: No, I was wondering though, and I was going to ask you, specifically if this was a bet on oil that had come so far in especially a short period of time and you figured that it had topped out and it appears from what you’re telling me now that that is the case. It is noteworthy and I wonder, you know what you’re thinking as you’re selling, and Warren Buffett is buying, and he’s probably buying some of what you were selling. I’m just wondering how you thought about all that as it was unfolding.
ICAHN: Well, he’s a tough guy to disagree with I mean, look at his record, and I don’t know that we disagree completely. We, you know, I think we’re at a certainly to a certain extent in a different business with Warren. I, I’m an activist, I look for a company that’s way in my mind way undervalued such as SWX and then there’s something I could do about it. That’s what I enjoy doing. That’s why I come to work every day. And so we don’t really just build a portfolio for the long term with a lot of capital. We, we look for the moment to strike and of course, I might have made a lot more money if I kept the Apple Inc (NASDAQ:AAPL)’s and Netflix Inc (NASDAQ:NFLX)’s that we bought, but we bought it when we made a big profit on it and now interestingly, we were losing on the activist play in OXY because we never believed that they would even go through with it. And as you know, I mean, it’s public record, you know, we turned that loss in Occidental stock, we made well over close to close to 2 billion actually in the stock and we bought as an activist, I think we did one very good thing. That stock was so cheap, that we got the board and Steve Chazen and he agreed to do these warrants that we put out. I mean, those warrants, the shareholders could really benefit from it, but probably many did. Those warrants were $1 and, and now they’re selling around $35. So, you know, so I’m still I have a complicated hedge on it still. You know, where I own the warrants and short some stock against it and short calls against it. That’s my old days, you know, I was an arbitrager for a while. Yeah, I love to play with those derivatives. So that’s, that’s one of the plays I’m in.
WAPNER: I mean the stock went from, the stock went from 10 to 62. Your point’s well taken in the long road that you had been in Occidental Petroleum Corporation (NYSE:OXY) before you you got out of it. Let me ask you this, McDonald’s Corp (NYSE:MCD). What’s that really about?
ICAHN: Yeah.
WAPNER: I mean 200 shares. It’s, you know.
ICAHN: We are not doing that, I’m not doing that to make money. I’m in McDonald’s because I may sound sanctimonious to you but you know, we’re a country that we’re a country that really doesn’t like or hates I’d say unnecessary cruelty. And I really hate it I mean for some reason emotionally, again I’m not trying to be sanctimonious, but emotionally, when you read about what they do to these animals, the unnecessary torture and cruelty really bothers me. And whenever I can do something about it, I try. And now I think there’s a way to do it where I mean, you take gestation crates with these pigs. I mean, these pigs are animals, they’re feeling animals, they’ve got good brains. And I certainly don’t own any pigs but, you know, I own dogs and whatever so I sort of love animals, and it really bothers me to see this unnecessary cruelty and here you have a board in McDonald’s, where McDonald’s has a lot of gravitas. And they could do something about it. So my daughter worked for the Humane Society, she’s a little chip off the old block here and she worked for the Humane Society 10 years ago and then she called me and she said, you know, we can’t get through to McDonald’s and if they if they if we could get them on our side to stop the gestation crates, you know, that would be a great victory and they won’t call us back. I said, well, they’ll call me back. I’ll bet on that one. So I called the CEO and he called me back, you know, in one day, and he said, Carl look, you know, we hear you, we hear you, and we promise, we’re going to make a promise to you that within 10 years, we will not buy from any any producer that has gestation crates. These gestation crates are the cruelest thing you ever saw. You take this pig, its whole life, you know, it’s only going to live four years, the sow, and you put them in a cage where they can’t move. And the pig never did anything to you. I’d like to see them put a tiger in there. I’d like to see what happens to them so they put it in that cage, the pig can’t move, they treat it cruelly its whole life. And it’s like a machine to make piglets and why did, it’s unnecessary. It’s completely unnecessary to do this.
WAPNER: So they, let me just read this. I mean, they say they’re on the road to, to making changes, and they say and it’s a, it’s a fairly long quote. So so bear with me if you would, but I think it’s important to read it. They say, “Despite McDonald’s progress, Mr. Icahn has instead asked for new commitments including to require all of McDonald’s US pork suppliers to move to ‘crate free pork’ and set specific timeframes for doing so. While the company looks forward to promoting further collaboration across the industry on this issue, the current pork supply in the US would make this type of commitment impossible. Furthermore, it reflects a departure from the veterinary science used for large scale production throughout the industry and would harm the company shared pursuit of providing customers with high quality products at accessible prices.” That is McDonald’s official response. I think it’s important to get it on the record, Carl.
ICAHN: Yeah no, it is important and it’s completely hypocritical. It’s a lie because there were many farmers today. Actually what they’re doing here is completely antithesis of ESG. And, and if you look at ESG, they say that you have to have some commitment and some feeling about when you talk about, you know, start the environment. Factory farming is terrible for the environment. Alright, you get huge amounts of methane in concentrated areas and it’s also really, I believe, causes a lot of disease. Not just I, but experts in this, when you keep these pigs confined that way together, they’re, they’re in these crates, they, they get these diseases, they fill them up with antibiotics, your kids, the people out whose kids are eating this meat that’s got antibiotics and it’s so you and in the areas that are in, the areas they’re in, the air quality is very bad. I mean, there’s I could go on and on but I’m not the great expert on it. But everything McDonald’s says is completely a manifestation of the fact that the board and I’m sorry, I will say the CEO also has no real idea about where they’re really even getting the supply of these pigs. 10 years ago, they absolutely promised to get rid of this thing, get rid of, not buy it from anybody that produced it. Now, they changing their story and say we’re asking for more. We’re not asking for more at all. We asking you to to get rid of this problem.
WAPNER: They do say, they do say by the end of this year they expect to source 85% to 90% of its US pork from sows not housed in gestation crates during pregnancy by the end of 2024. The company said—
ICAHN: But there’s the complete bullshit that they are saying to you because they say during the pregnancy. Well, the sow is pregnant for a good part of its life. So yeah, so maybe they’ll take they’ll do this great thing but make sure the factory farm that’s torturing the animal so it’s unnecessary cruelty and torture. Okay, we’ll let them out for a week or two. I mean, I, you know, I’ve talked to the board by the way, I’ve talked to the chairman and whatever and he seems like a nice guy. But he even told me he said, you know, I learned about this stuff only in the last few weeks because I’m talking to you. I think the board over at McDonald’s in my mind is a sort of a rubber stamp board. Look what they did about Easterbrook over there. You know, they let him walk away with a lot of money until they had such criticism that they had to bring him back. I’m not saying they’re bad people. But I’m saying—
WAPNER: Would you buy more stock? Would you increase, would you increase your position and try and exert more pressure if that was a way to do it?
ICAHN: I would tell you this, you always like to know whether I’m buying something or not and in this case, I am not doing this to make any money for myself. And I don’t want to be seen as owning stock because I’m saying I am not here to say I’m going to make some money on McDonald’s.
WAPNER: Understood.
ICAHN: I think McDonald’s has a lot to answer to people that are fans of ESG because I really think if you look at McDonald’s, hey, they’re a, they’ve got great gravitas. But in a lot of cases, for instance in the environment, I would say they get an F because of what I’ve just told you. As far as the social issues go, this is antithetical to any kind of social issues that we were involved in here, and certainly in governance. You have a rubber stamp board and you’ve had that for many years ago at McDonald’s, but you know what, many companies fail in governance. Many companies do have a rubber stamp board, but this is particularly one. And I, for instance, they knew 10 years ago we had this, this promise, they never even looked at it again. Okay, so that’s one thing, but their rubber stamp board in many other areas too, just the Easterbrook fiasco shows that and we’re gonna bring all that out the next few weeks or the next month. And then hey, let’s see what they do. Let’s see if they could give a damn. But you know what, I really find that it bothers me and I’m not going to tell you I’m here to, you know, change companies and change the world. You know, I do what I do, but I think I do it well. But when something like this comes up, it’s more than just McDonald’s. It’s the fact that they they have so much corporate hubris that you can’t tell McDonald’s what to do and these, these animals are suffering, day and night, 24 hours, they’re suffering, and these guys just don’t care. And that’s what, that’s what bothers me and by the way, they told the Humane Society, this is why I got in again. So 10 years ago, they promised to do it. I said, great. My daughter says, oh, great victory. She left the Humane Society many years ago, but they did call me up and they said, you know, they just broke their promise. We tried to talk to them on the 17th which was the date they were supposed to talk and they just won’t talk to us and they just blatantly told us to go fly a kite. They told us hey, too bad we have a promise. We’re not keeping it. That’s what they told him. I said, okay that’s it for me. And that’s what I got into it. Alright. And I said, you know, all we’re asking and they said what you just read, we’re gonna do this, this, this and this. I said, well, okay, I want to verify that. I said, well, they say they literally say trust us and I said how can I trust you when you didn’t do it for 10 years.
WAPNER: Well we’ll say on—
ICAHN: Right.
WAPNER: Well we’ll say on top of the story.
ICAHN: I really think there’s going to be, we’re gonna, we’re gonna. Hey, you’ll be hearing from us on that and this one is a freebie because I care about it so much. Okay.
WAPNER: Carl, I’m gonna, I’m gonna leave it there. I really appreciate you joining us in “Overtime,” our new program. It’s nice to talk to you again.
ICAHN: Okay, good talking to you and good luck on it, Scott. Good luck and I’m sure you’ll do as well on this one as your other one.
WAPNER: I appreciate it very much. That’s Carl Icahn joining us in an “Overtime” exclusive today.
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