Just after the close today, Carl Icahn disclosed that through his investment vehicles, he has accumulated a 9.39% stake in the recently beaten down Family Dollar, buying the shares with the "belief that they were undervalued. The Reporting Persons see great long-term potential in the Issuer’s industry and believe the Issuer’s current situation is analogous to that recently faced by companies such as CVR Energy, Forest Laboratories, Chesapeake Energy and Biogen, as well as a number of other companies over the last two decades, where the Reporting Persons’ involvement helped to generate tremendous returns for all shareholders."
The Reporting Persons intend to seek to have conversations with members of the Issuer's senior management and board of directors to discuss the Issuer’s business and strategies to enhance shareholder value, which may include the pursuit of operating initiatives or the exploration of strategic alternatives. The Reporting Persons may also determine to seek shareholder board representation if appropriate.
What he means is that quite soon Family Dollar will be forced to lever up the wazoo, and the proceeds of the debt will be used to buyback its shares, also known as Icahn activism 101, thereby boosting Icahn's wealth and crushing the long-term prospects for the company which will certainly file for bankruptcy under its new and improved debt load during the next downturn.
That much is given.
It probably won't surprise many that the process of accumulating Icahn's stake was almost identical to his foray into Netflix: a tiny fraction in stock, with just over 1.3 million shares purchased between April 7 and 9, and the rest, or 9.4 million shares, 88% of the total, in the form of calls expiring April 8, 2016 with a $38 strike price, with the purchase price offset by the selling of 9.4 million Puts with identical characteristics to the calls.
This, one may call Icahn 102 in a creeping activist tactics.
Needless to say, the stock soared by 10% in the after hours.
But while none of the above is peculiar in itself, aside from Icahn's sudden interest in a dollar retailer, one question does arise. When looking at the total volume of calls purchased in FDO over the past month...
... and particularly that massive spike today alone, just after noon, just before the 13-D filing...
.... we can't help but wonder: which belong to Phil Mickelson?