Company: Dana Inc. (DAN)
Business: Dana provides power-conveyance and energy-management solutions for vehicles and machinery in North America, Europe, South America, and Asia Pacific. It offers sealing solutions, thermal-management technologies, and digital solutions to vehicle and engine manufacturers. The company operates in four segments: Light Vehicle Drive Systems, Commercial Vehicle Drive and Motion Systems, Off Highway Drive and Motion Systems, and Power Technologies.
Stock Market Value: $3.1B ($22.11 per share)
Activist: Carl Icahn
Percentage Ownership: 9.91%
Average Cost: $20.95
Activist Commentary: Carl Icahn is the grandfather of shareholder activism and a true pioneer of the strategy. While he is not slowing down at all, he recently reached an agreement with his son, Brett Icahn, to rejoin the firm as the eventual successor. Brett plans to employ his father’s favored approach of pushing companies to make changes designed to boost their stock prices, though he hasn’t ruled out friendly bets too. This is not a departure from the strategy Carl has succeeded with for many years. He can be friendly (i.e., Apple, Netflix) or he can be confrontational (i.e., Forest Labs, Biogen), often it depends on the response of management. Brett is an impressive activist investor in his own right, not because he is Carl’s son, but because he has demonstrated a long track record of extremely successful activist investing. The Sargon Portfolio he co-headed at Icahn at one time totaled around $7 billion and included extremely profitable investments in companies such as Netflix and Apple. The Sargon Portfolio significantly outperformed the market with an annualized return of 27%. However, prior to that Brett started in 2002 with Icahn as an analyst and was later responsible for campaigns like Hain Celestial (280.3% return versus 46.7% for the S&P 500), Take Two Interactive (81.5% versus 64.5% for the S&P500) and Mentor Graphics (106.4% versus 79.4% for the S&P 500).
What’s Happening?
On Jan. 7, 2022, Icahn and the company entered into a Nomination and Standstill Agreement pursuant to which the company appointed Brett Icahn and Gary Hu (both portfolio managers at Icahn Capital) as directors to the board and agreed to include them on their slate of director nominees for election at the 2022 annual meeting. Icahn agreed to abide by certain standstill provisions until he no longer has directors on the board.
Behind the Scenes:
Icahn has tremendous experience in the automotive industry, currently owning and operating Icahn Automotive, which makes up 28% of the total net sales of Icahn Enterprises (“IEP”). Icahn Automotive was built, in large part through acquisitions. Starting as an investor in Federal-Mogul in 2001, Icahn ultimately acquired the entire company by 2017. Icahn also acquired substantially all the U.S. auto parts assets of Uni-Select, Inc., a leading automotive parts distributor for domestic and imported vehicles; Pep Boys – Manny, Moe & Jack, a leading aftermarket provider of automotive service, tires, parts and accessories across the U.S. and Puerto Rico; the franchise businesses of Precision Tune Auto Care; and American Driveline Systems. Icahn ultimately sold Federal-Mogul to Tenneco in 2018 for $5.4 billion, and today Icahn Automotive consists of Pep Boys automotive aftermarket retail and service chain, Auto Plus automotive aftermarket parts distributor, Precision Tune Auto Care owned and franchised automotive service centers, and AAMCO Total Auto Care franchised service centers. The businesses of Icahn Automotive total over 22,000 employees, over 2,000 company-owned and franchise locations and 25 distribution centers throughout the U.S., Canada, and Puerto Rico.
Icahn is not only knowledgeable about this industry, but he also has experience with this company. In March 2006, Dana declared Chapter 11 bankruptcy ,and Icahn acquired approximately $101.25 million of the company’s then-$2.25 billion unsecured debt with the intention of being an “active participant” in the bankruptcy case. Icahn again became an equity owner in the fourth quarter of 2020 and filed a passive 13G on Feb. 4, 2021 with a 7.5% ownership. His intent since changed from passive to active and he filed this 13D upon taking two board seats at the company.
There is no doubt that Icahn’s two portfolio managers, Brett Icahn and Gary Hu, will make value-added directors as they not only have industry experience, but are shareholder directors – either on its own is valuable for a board member, but it is very rare to have a director with both of those attributes. So, if that is all Icahn does from an activist perspective in this investment, he should be creating significant value for shareholders.
However, it is hard to overlook the elephant in the room. Icahn built his automotive industry on acquisitions, and Dana appears to fit in very nicely in IEP’s automotive business. Moreover, IEP states that its strategy in its Automotive segment is to continue to grow its commercial parts sales and its automotive service business, and it will continue to consider strategic alternatives in its automotive aftermarket parts business to maximize value. When Icahn acquired Pep Boys, he also stated: “We believe that with our abundant resources and knowledge of the industry we will be able to grow this business and take advantage of consolidation opportunities, thereby benefiting customers, manufacturing partners and employees, as well as our shareholders.” So, it is hard to believe that Icahn is not at least considering Dana as a potential acquisition or merger candidate. However, as an investor who has always prioritized corporate governance and shareholder value, we expect that if he does acquire the company, it will only be after a sales process by an independent investment bank and an arms-length negotiation in which the Icahn directors recuse themselves.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Dana is owned in the fund.