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Icahn Collects His Winnings with Tropicana Casino Deal -- Barron's Blog
DOW JONES & COMPANY, INC. 1:18 PM ET 4/16/2018

Symbol Last Price Change
IEP 62.0462down +0.5862 (+0.95%)
TPCA 69.8down +14.8 (+26.91%)
ERI 41.2down +5.5 (+15.41%)
TEN 52.8up +1.12 (+2.17%)
CVI 34.33up +0.82 (+2.45%)
AIG 54.45up +0.86 (+1.6%)
HLF 101.71down +1.05 (+1.04%)

QUOTES AS OF 03:19:30 PM ET 04/16/2018
Carl Icahn has pulled off his second coup in two weeks, as Icahn Enterprises(IEP) , the limited partnership that he controls, reached a deal to sell its majority-owned casino company, Tropicana Entertainment(TPCA) , for $1.85 billion to Gaming and Leisure Properties (GLPI) and Eldorado Resorts(ERI) .

Icahn started assembling Tropicana, whose properties including a casino-hotel in Atlantic City, in 2008, when Tropicana was in bankruptcy.

The transaction follows a deal last week, when Icahn Enterprises(IEP) agreed to sell its wholly owned auto-parts company, Federal-Mogul, to Tenneco(TEN) for about $2.4 billion in cash and stock, netting an estimated profit of $700 million -- about a year after Icahn Enterprises(IEP) bought out minority holders.

Icahn Enterprises (IEP) didn't give a per-share on the Tropicana deal because Tropicana will pay some taxes on the transaction, which one Tropicana holder estimates could be close to $100 million. Tropicana's thinly traded shares are up $15 to $70, valuing the company at nearly $1.7 billion.

In a statement, Icahn said:

Icahn Enterprises (IEP) first acquired an interest in Tropicana in 2008. Tropicana was bankrupt and desperately needed new leadership. At that time, we identified this undervalued asset as being a perfect situation to deploy our modus operandi, by which we seek to acquire undervalued assets, nurture, guide, and improve their condition and operations, and to ultimately greatly enhance value for all shareholders.

Tropicana was the subject of a bullish story on Barron's online two years ago when the stock traded around $16 ( "A Safe Casino Bet: Icahn's Tropicana Entertainment(TPCA)," March 2, 2016). In the first sentence of that article, we stated that that Tropicana "could be the most undervalued casino company in the U.S." That call was accurate because the stock has nearly quadrupled since then.

At that time, Tropicana traded for just 11 times trailing after-tax earnings and for 3.5 times earnings before interest, taxes, depreciation, and amortization, or Ebitda. Most casino operators traded then at seven to eight times Ebitda. The discounted valuation reflected in part the lack of liquidity in the shares, which then averaged less than 10,000 shares daily on the Pink Sheets.

Icahn Enterprises (IEP) owns nearly 20 million Tropicana shares, an 83% stake, after increasing its interest last year in a tender offer when it purchased 2.3 million shares in August at $45 a share, while Tropicana bought 800,000 shares. That tender shows the pitfall for investors in voluntarily selling stock to an informed buyer. As it has turned out, Tropicana is being sold for more than 55% above the tender prices less than a year later.

Icahn Enterprises (IEP) units are up 29 cents today at 61.75. The diversified partnership owns a sizable stake in CVR Energy(CVI) , a Midwest refiner, and has $3 billion invested in a hedge fund run by Icahn that has had poor performance in recent years. It gained 2.1% last year, way behind the Standard & Poor's 500, and lost 20.3% in 2016. The hedge fund owns stakes in American International Group(AIG), Cheniere Energy, and Herbalife(HLF). Icahn Enterprises(IEP) also owns the Pep Boys auto-repair shops.

Icahn Enterprises (IEP) tends to get valued based on its net asset value. The company provides a quarterly estimate of NAV, which was $7.9 billion, or around $46 a unit, at year-end.

The Federal-Mogul deal should boost NAV by about $5 a unit but the Tropicana deal likely won't move NAV because the company has been carrying the Tropicana stake at $1.4 billion, in line with the deal price. The company valued Tropicana at nine times trailing ebitda, above the market price, citing a "lack of material trading volume."

At nearly $62, Icahn Enterprises(IEP) trades at a premium to our estimate of its current NAV. The stock doesn't trade actively because Icahn owns about 90% of it.

More at Barron's Stocks to Watch blog, http://www.barrons.com/stocks-to-watch


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04-16-181518ET
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