Analyzing a business, this looks sketchy

[ahnuld]

Reading over the annual report of American Railcar industries (ARII) and I get to this warning:

"Mr. Icahn’s interests may conflict with the interest of our stockholders.
Mr. Icahn owns and controls and has an interest in a wide array of companies, some of which, such as ARL and
ACF as described below, may compete directly or indirectly with us. As a result, his interests may not always be
consistent with our interests or the interests of our other stockholders. For example, ARL, a railcar leasing company
owned by Mr. Icahn, competes directly with our other customers that are in the railcar leasing business and ACF,
which supplies us with critical components, also provides components to our competitors. ACF has also previously
manufactured railcars and may do so in the future. Mr. Icahn and entities controlled by him may also pursue
acquisitions or business opportunities that may be complementary to our business. Our certificate of incorporation
allows Mr. Icahn, entities controlled by him, and any director, officer, member, partner, stockholder or employee of
Mr. Icahn or entities controlled by him, to take advantage of such corporate opportunities without first presenting
such opportunities to us, unless such opportunities are expressly offered to any such party solely in, and as a direct
result of, his or her capacity as our director, officer or employee. As a result, corporate opportunities that may
benefit us may not be available to us in a timely manner, or at all. To the extent that conflicts of interest may arise
between us and Mr. Icahn and his affiliates, those conflicts may be resolved in a manner adverse to us or to you or
other holders of our securities."

Icahn owes a big chunk of outstanding share (29%) and 53% of the voting share. So does this mean Icahn has a license to steal from this company? It doesnt look like he has in the past, but couldnt he just vote in a CEO to will give the other Icahn companies really good prices and such?

Some more background. Icahn has held ownership in the company for over 10 years and the CEO has been around for awhile and seems pretty independant.

[ahnuld]

bump for the evening crowd?

[stephenNUTS]

Icahn owes a big chunk of outstanding share (29%) and 53% of the voting share. So does this mean Icahn has a license to steal from this company? It doesnt look like he has in the past, but couldnt he just vote in a CEO to will give the other Icahn companies really good prices and such [ QUOTE ]


[/ QUOTE ]

I am not really not sure what your question is?


Do you mean......his majority control gives him the ability to do whatever he wants as far as management appointments,or to actually extract $$$$ from the company with the "liscence to steal" reference?

SF [img]/images/graemlins/confused.gif[/img]

[AvivaSimplex]

[ QUOTE ]
Icahn owes a big chunk of outstanding share (29%) and 53% of the voting share. So does this mean Icahn has a license to steal from this company? It doesnt look like he has in the past, but couldnt he just vote in a CEO to will give the other Icahn companies really good prices and such?

[/ QUOTE ]
Legally, there are probably some barriers to this. In practice, he can probably get away with whatever he wants to. That said, Icahn's M.O. has generally been to slash and burn whatever he needs to so that the share price goes up, rather than to loot through shady business practices.

[ahnuld]

stephen, what I meant to ask was whether he could mess around with transfer prices to help his company upstream at the expense of this company downstream.

[Esection]

ahnuld -

i think this clause exists basically to allow icahn to operate more efficiently and not have to worry about all the red tape. being a majority shareholder carries with it a ton of regulations and reporting requirements that have to be followed, and im pretty sure this is just a blanket "my interests arent always aligned with you so im just telling you thus in case a situation arises where i feel its in my best interest to take advantage of it" statement

also, being that he owns a large stake in both these companies (or other similar ones), it is his best interest to see them BOTH succeed.

finally, i know you know what dcf analysis is, and that all things being equal (+ assuming he holds the same stake in each company and that the business are equally risky), increasing the transfer prices on the one side will show no net benefit for icahn because its offset on the other.

[stephenNUTS]

[ QUOTE ]
stephen, what I meant to ask was whether he could mess around with transfer prices to help his company upstream at the expense of this company downstream.

[/ QUOTE ]

Sorry Ahnuld about just replying,

But ....someone of Icahns wealth/reputation/stature,would really make no sense in doing ANYTHING illegal

Albiet,majority control gives him obvious advantages,but doing anything shady/illegal....would just be suicide for him.These W/S bigwigs(Icahn,Buffet,etc) are under a [censored] microscope when it comes to doing anything not kosher.

Any prosecutor,SEC boss,AG,...would love nothing more than to say they brought down an "Ichan" type on their resume from something just abit off-base these days.

e.g ....look at NYS attorney general Cuomo, sending out supeonas to various banking firms the last few days over the sub-prime mess.Spitzer did the same thing a few years back,all in the name of their OWN political gains IMO

Any mis-step by these W/S big names would be a disaster for them in my book

Stephen [img]/images/graemlins/cool.gif[/img]

[spider]

I don't know anything about these companies, but if I were thinking of investing in ARII, I'd be curious to know the relative stake Icahn has in the other two companies mentioned (ARL & ACF). For example, if you found his stake in ARII to be 5% of his combined stake in ARL & ACF, that would definitely scare me away from buying ARII.

I think the statement here to some degree is pretty generic and not worrisome (Mr. Icahn owns lots of stuff therefore has lots of potential conflicts of interest), but when specific companies are mentioned in the context of a possible conflict of interest, that would be something I'd worry about and investigate as a potential investor in ARII.

Another thing to consider would be buying the three companies together like Icahn. Then anything Icahn might do to help one company vs the other should have a net positive effect and you benefit the same as Icahn.

[ahnuld]

stephen, spider you both make very good points. Ill look into the company more before making any decisons and will also check out those other 2 companies mentioned.