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Carl Icahn Raises His Bid For Federal-Mogul For A Third Time

Carl Icahn’s investment firm, Icahn Enterprises (NASDAQ: IEP), sweetened its offer for a third time to buy shares of Federal-Mogul Holdings (NASDAQ: FDML) it does not already own (currently owns ~82% of shares outstanding) on January 3, 2017.

Deal Background

  • Latest offer of $10 a share represents a 3% discount to last Friday’s close but is double the closing price when Icahn made his first offer back in February 2016 at $7 per share
  • Current offer comes after Icahn failed to get enough shareholders to tender their shares in favor of the deal (Icahn needs enough shareholders to tender their shares for his stake to reach 90%, at which point he can take the company private)
  • Initial bid in February 2016 at $7; raised offer to $8 in June 2016; raised offer again to $9.25 in September 2016
  • Icahn initially acquired bonds in Federal-Mogul before its bankruptcy over asbestos liabilities in 2001; post-reorganization, Icahn’s position was exchanged for equity

Strategic Rationale

  • Icahn bought auto parts retailer, Pep Boys: Manny, Moe & Jack, for $1B in February 2016
  • Icahn also bought auto parts distributor, Uni-Select USA for $340MM in June 2015
  • It is expected that Icahn will vertically integrate FDML’s aftermarket division with Pep Boys and try to maximize value by integrating the auto parts platform he has accumulated thus far
  • Privatizing FDML and gaining full control of the business would facilitate Icahn to unilaterally execute his strategic initiatives without having to appease public shareholders

Mario Gabelli

  • Mario Gabelli, founder and CEO of GAMCO, owns 36% of the shares that Icahn does not own and has been pushing for a $13 valuation (New York Post)
  • This is not the first time Mario Gabelli was involved in a company on the other side of Carl Icahn; he was a significant shareholder of Pep Boys when he succeeded in getting Icahn into a hotly contested bidding war against Bridgestone Corporation of Japan. Bridgestone bid $15 a share and Icahn ended up paying $18.50 a share
  • In the case of FDML, in order for Icahn to reach 90% ownership in FDML, he does not necessarily need Mario Gabelli to support and tender his shares but it would make it much easier

Federal-Mogul Holdings Corporation supplies various components, accessories, and systems to the manufacturers and servicers of vehicles and equipment worldwide, operating in two segments: Powertrain and Motorparts. As of January 3, 2017, FDML had a market cap of roughly $1.7B and an enterprise value of roughly $4.7B.

Carl Icahn is the founder and Chairman of Icahn Enterprises and is a renowned activist investor and a business magnate.

Image Source: Bloomberg

 

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