Carl Icahn's Next Target Freeport McMoRan
Legendary activist investor Carl Icahn has made billions in profits investment in undervalued companies. Icahn is legendary for his activist campaigns that result in those massive profits for him and other shareholders. Now, due to the collapse in the commodity prices, Icahn has picked his next target, Freeport McMoRan (FCX). He has taken an 8.5% stake in the company along with a few other activist firms.
Icahn built his stake in Freeport McMoRan through various transactions beginning on July 17th, dating the regulatory filing for August 17th.
In the filing that he released to the SEC, Icahn disclosed that he purchased shares in the company because he believed that it was undervalued. He said in the filing that he would push the management of Freeport to change its capital expenditures and executives compensation. Icahn also wants the company to disclose high-cost operations and to change its capital structure.
Freeport released a statement in response to Carl Icahn announcing his stake in the company:
"FCX maintains an open dialogue with our shareholders and welcomes constructive input toward our common goal of enhancing shareholder value," "Earlier today, FCX announced revised capital and operating plans in response to the recent decline in commodity prices resulting in reduced capital expenditures, lower production levels and lower operating, administrative and exploration costs. Today's actions, along with the August 5, 2015 announcement of reduced oil and gas capital expenditures, are the results of the previously announced review of operating plans."
Freeport posted their plans to cut their excessive capital spending on their website.
Here are the six points of the plan that the company posted on their webpage:
- 25% reduction ($700 million) in estimated 2016 Mining capital expenditures.
- Projected consolidated 2016 capital expenditures for Mining and Oil & Gas estimated at $4.0 billion.
- 29% reduction from July 2015 estimates.
- Reduction in copper sales of 150 million pounds per year in 2016 and 2017.
- 20% reduction in estimated 2016 unit site production and delivery costs compared with 2015.
- Action enhanced outlook for free cash flow generation at low prices.
The company announced this plan to deal with the collapse in commodity prices and ran in its excessive capital spending. Freeport is a diversified commodity business and is involved in multiple commodity extractions throughout the world. As a result of this plan, Freeport has deduced its 2016 capital expenditures to $4 billion dollars, a 29% deduction from its July estimates. It is a good thing that these current commodity prices are a drag on the company's operating cash flow. The decrease in capital expenditures will help to ease the pain of weak commodity prices.
Carl Icahn's investment in Freeport isn't a surprise if you have followed his career. He has said over and over that he likes to invest in depressed assets and sell these assets once they reach value. I don't know how activist Icahn will be in Freeport. If history is a guide, sometime in the near future Icahn will be on TV discussing Freeport and how the company was a no-brainer. He will attack management for wasting money and not serving the interest of shareholders.
Posted in ...Market Commentary