I do believe in the “invisible hand” of Adam Smith.
But, upon occasion, the IH needs a nudge-is this what Icahn does?
As I understand it, Icahn became a “corporate raider” because, early in his career, he realized that many corporations had a tremendous disparity in the valuations of the firm. For example, an old firm may be sitting on billions of $ in real estate, which is carried on their books as worth a few million. Other corporations might have very low market capitalization (due to their stock not being actively traded), but have tremendous income possibilities.
In essence, Icahn found that he could get very rich by doing the following:
-find a firm with undevalued stock market capitalization
-convince investors and bankers to lend him money
-buy a controlling interest in the firm
-take control, appoint a CEO, and break up the firm, sell assets, etc.
-sell the stock he had accumulated
Now, in one sense, Icahn had performed a service to the shareholders-many received rewards beyond their dreams-some got many times what they had paid for the stock.
the downside was that thousands lost jobs, as these firms were restructured…and new divisions sold off (many to offshore investors).
So, on balace, are the activities of a guy like Icahn good or bad for the USA?
The theory used to be that many companies’ managers were not even attempting to maximize shareholder value. The management was either deliberately looting the company or slackers or running the company as a family business (cf NewsCorp) when the family only held a small share but effectively controlled the board.
So back in the 1960’s and 1970’s Icahn and his ilk could actually mount a proxy fight, take over the company and try to run it better. Sometimes this was not good news for the management, the employees, the unions, the community the company was located in, etc. But that was not seen as the proper concern of management.
Of course management responded to these threats by inventing creative, lucrative and sometimes very unethical schemes to fend off “raiders”. The poison pill. So the opportunities are now much more limited. The cost of a hostile takeover is almost always prohibitive.
That’s the theory anyway.