Carl Icahn’s billions in Lombard loans

A tragedy right at the beginning: The search is still ongoing for Mike Lynch, one of Britain’s best-known tech entrepreneurs, and five others after a luxury yacht sank off the coast of Sicily. Jonathan Bloomer, chief executive of Morgan Stanley International, and Christopher Morvillo, a lawyer at Clifford Chance, are also missing.

In today’s newsletter:

• SEC files charges against Carl Icahn over private loans

• The big drama at H2O Asset Management

• Popular Japanese convenience store chain faces takeover bid

Carl Icahn settles SEC charges over margin loans

Carl IcahnThe activist investor, known for his uncompromising investment strategies, has had a tough year. But at least one of his problems has been solved.

The billionaire and Icahn Enterprises agreed with the US Securities and Exchange Commission on Monday over allegations that he had failed to properly disclose billions of dollars in private Lombard loans that he had taken out against shares in his company.

The agency alleged that Icahn had pledged more than half of his company’s outstanding shares as collateral for his personal loans since at least late 2018. He did not disclose those pledges, along with other information requested by regulators, until February 2022.

Together, he and Icahn Enterprises paid just $2 million to settle the charges.

By the end of 2022, Icahn’s personal margin debt had skyrocketed. He had $5 billion in outstanding margin loans and at least 11 lenders were involved in the trades in the years prior, the SEC said in its findings.

All this was at least partly caused by a short seller attack by Hindenburg Research in May 2023, which said the company was overvalued and involved in “Ponzi-like economic structures.”

Nathan AndersonThe hedge fund also warned that Icahn’s loans could be vulnerable to margin calls that would force him to sell or pledge more shares.

Since then, Icahn has gained some time.

Last summer, he restructured a multi-billion dollar personal margin debt into a three-year loan with five banks: Bank of America, Bank of Montreal, Deutsche Bank, Morgan Stanley And M&T Bank.

But in just a few weeks, the clock will start ticking: Then he will have to start making quarterly debt repayments of $87.5 million – before finally paying off the final repayment of about $2.5 billion.

“Hindenburg’s practice of publishing defamatory and unsubstantiated allegations has harmed IEP and its investors,” Icahn said in a statement.

He added: “We are pleased to put this matter behind us and will continue to focus on running the business for the benefit of shareholders.”

Superyachts, fake documents and H2O

Secret trips on superyachts to the Caribbean and Mediterranean, forged documents and fabricated records, and discussions about purchasing tens of thousands of dollars worth of fine wine to celebrate the opening of a new luxury lingerie store.

This may sound like an extract from a cheap thriller that a DD reader might have picked up at the airport bookshop on the way to a summer holiday, but it is actually details from the FT’s recent in-depth investigation into the H2O Asset Management Scandal.

H2O recently agreed to pay 250 million euros to investors to avoid a fine from the British Financial Supervisory Authorityfollowing a five-year investigation first triggered by the FT’s reporting on the asset manager’s disturbing links to a notorious financier Lars Windhorst.

It has now emerged that, during the regulatory investigation, certain H2O employees created retrospective due diligence documents and even falsified minutes of meetings that never took place, apparently in an attempt to cover up their lax oversight of a number of risky and illiquid investments.

At the same time, H2O tried to hide from regulators that its senior managers had been pampered by Windhorst for years and that the company’s top executives had been treated to world trips in his private jet and superyacht.

While H2O has said it has since overhauled its “risk management and compliance teams, its corporate governance and its internal procedures,” the details uncovered by the FCA and the FT paint a grim picture of the lengths H2O went to hide its risky dealings from both the authorities and its investors.

The late riser who has his sights set on 7-Eleven

Canadian retailer Diet Couche-TardOwner of the District K. Brand, gives mega mergers and acquisitions another chance.

After the failed attempt to take over the French supermarket giant Carrefour The Quebec company, which it bought a few years ago for 16.2 billion euros, now has a much bigger target in its sights: the Japanese operator of the 7-Eleventhe world’s largest convenience store chain.

This “friendly” approach – as described in the Canadian company’s brief press release confirming the move – is unlikely to be any easier than the attempt nearly four years ago.

In fact, it may be twice as difficult to close the deal – and that’s not just because 7-Eleven’s holding company is worth around $38 billion.

Problem No. 1: Hostile deals – yes, at Team DD we call them unsolicited offers – are difficult to pull off. This M&A truism is particularly relevant when it comes to Japanese companies that are considered national strategic assets. It is somewhat comparable to the French government’s decision in 2021 that Carrefour could not be sold due to food safety concerns.

Problem No. 2: US antitrust authorities are likely to fight back. DD has been told they will pay particular attention to the impact on overall market power, pricing and the labor market.

Despite these challenges, Couche-Tard’s supporters are convinced that things are different this time.

Solution No. 1: Last year, the Japanese government introduced guidelines to prevent management teams and boardrooms from rejecting unsolicited takeover offers, sparking a wave of hostile mergers and acquisitions since then.

Solution No. 2: There is hope that regardless of the presidential election victory in November, antitrust law will be less of a cause for concern.

Be that as it may, Couche-Tard – whose name means “late riser” or “night owl” – will have to work around the clock to close this deal.

Job change

• Paul Weiss has stopped Kerri Durso as a partner for the firm’s finance group in New York. Previously, she was a partner at A&O Shearman.

• BakerMcKenzie has stopped Colleen Lee as a partner to advise on M&A and other situations in the firm’s Palo Alto, California office. Previously, she worked for Skadden.

• Estee LauderManaging Director Fabrizio Freda has announced that he will retire after nearly 15 years with the company. He will continue to lead the business until a successor is appointed. His retirement is scheduled for the end of June next year.

Intelligent reading

Musk fears Elon Musk has been getting himself into politically sensitive situations lately, writes the FT. But is he just “an angry man shouting into a hurricane”?

Last straw First & Peoples Bank in Kentucky has survived floods, an oil spill and a smallpox outbreak. The partnership with a fintech company could be the bank’s downfall, writes the FT.

Financial fraud As Bloomberg reveals, criminals posing as members of JPMorgan’s fraud unit stole more than a million dollars from an octogenarian in upstate New York, just one case amid an epidemic of financial fraud across the United States.

News overview

60% more startup bankruptcies, founders struggle with the consequences of the boom years (FT)

AMD signs $4.9 billion deal to challenge Nvidia’s leadership in AI infrastructure (FT)

Billionaire heirs of 7-Eleven could reap big profits from surprise offer (Bloomberg)

Beijing restricts data trading as foreign investors shun Chinese stocks (FT)

Goldman Sachs conviction sheds light on dilemma in police officer conduct (FT)

SEC accused of “censorship” over politically sensitive audit documents (FT)