Icahn's Activist Funds' Slim Returns Supply Cause to Deactivate

By Katherine Burton


July 3 (Bloomberg) -- Carl Icahn has hit the roughest patch of his
hedge-fund career.

His $7.9 billion in hedge funds fell 7 percent between October and
April, the biggest peak-to-trough loss since the funds opened in
November 2004, according to investors. That compares with an average
annual return on his investments of 53 percent from 1996 to mid-2004.

Icahn has lost money on cellular-phone maker Motorola Inc., his
biggest investment. The 72-year-old billionaire also failed to
persuade executives at Yahoo! Inc. and Biogen Idec Inc. to take his
advice for boosting their stock prices.

While falling equity markets and the slowing economy are beyond
Icahn's command, the setbacks at Yahoo and Biogen don't bode well for
his future as an activist shareholder, said Brett Barth, a partner at
New York-based BBR Partners, which has invested $1 billion in hedge
funds for clients.

``When you have been unsuccessful as an activist, it emboldens
companies to be combative,'' Barth said.

Icahn has so far come up short in his efforts to force Sunnyvale,
California-based Yahoo, owner of the second-most- popular online
search engine, to sell itself to Microsoft Corp. He also lost a proxy
battle this month to elect his candidates to the board of Cambridge,
Massachusetts-based Biogen, making a sale of the world's biggest
maker of multiple sclerosis drugs less likely.

Icahn declined to comment on his investments and performance. The
funds rose 6.3 percent during the past 17 months, compared with a 1.5
percent increase in the Standard & Poor's 500 Index.

Trailing Rivals

His funds trail activist investor Daniel Loeb's New York- based Third
Point Offshore Fund, which gained 17.4 percent during the same
period. Chris Hohn's TCI Fund Management LLP, which staged a proxy
fight at railroad CSX Corp., returned 37 percent in the same period.

The mediocre returns are a comedown for Icahn, who has earned
billions as a corporate raider, including the 1985 takeover of Trans
World Airlines Inc. He made $893 million trying to break up RJR
Nabisco Holdings Corp. in the 1990s.

Icahn generated a 53 percent annual return on invested capital from
January 1996 to May 2004, according to documents used in 2004 to
market his New York-based hedge funds. In 2006, the Icahn Fund rose
about 29 percent, while the U.S. benchmark Standard & Poor's 500
Index advanced 13.6 percent.

Since then, Icahn has struggled. He paid about $2.3 billion, or
roughly $13 a share, for his 7.6 percent stake in Schaumburg,
Illinois-based Motorola, according to a filing in May with the U.S.
Securities and Exchange Commission.

Motorola Seat

Icahn made an unsuccessful bid for a board seat last year. Motorola
Chief Executive Officer Gregory Brown has bowed to pressure to spin
off the handset unit and focus on television set-top boxes, two-way
radios and wireless networking equipment. Motorola shares closed
yesterday at $7.15 in New York Stock Exchange composite trading.

Icahn paid an average price of $18.46 for shares of real- estate
developer WCI Communities Inc. in Bonita Springs, Florida, and his
offer to buy the rest at $22 was rejected last year by management. He
did win three board seats last August and was named chairman. WCI
Communities fell 18 cents yesterday to $1.31.

His biggest success was BEA Systems Inc. this year. Icahn bought
shares of the San Jose, California-based software company for $12.81
a share, on average, and then pressed BEA and bigger rival Oracle
Corp. to merge. Oracle bought BEA in April at $19.38 a share,
producing a return for Icahn of about 50 percent in less than a year.

`Lumpy Returns'

``All these activists are going to have lumpy returns,'' said Brad
Alford, head of Alpha Capital Management LLC in Atlanta, which farms
out money to hedge funds. He considers Icahn ``one of the best
activists out there.''

When Icahn said he was buying Yahoo shares with the goal of getting
the company to agree to a purchase by Microsoft, John Paulson's
Paulson & Co., Boone Pickens's BP Capital LLC and Loeb's Third Point
purchased shares too. Icahn remains locked in a proxy fight with the
company.

Icahn hasn't publicly disclosed his costs for buying Biogen or Yahoo.
Biogen shares have climbed to $58. He bought them in the second
quarter, when they closed as low as $43.68. His campaign to take
control of the drugmaker collapsed last month when he failed to win
enough shareholder votes.

Icahn said in a Bloomberg Television interview on June 5 that his
Yahoo investment was profitable. Since then, the shares have dropped
20 percent. The shares gained 3.4 percent yesterday on optimism that
Microsoft may revive attempts to take over the Internet company.

To contact the reporter on this story: Katherine Burton in New York
at kburton@...

Last Updated: July 3, 2008 00:01 EDT