Company: Dana Inc. (AND)
Shop: dana provides power transmission and energy management solutions for vehicles and machinery in North America, Europe, South America and Asia Pacific. It offers vehicle and engine manufacturers sealing solutions, thermal management technologies and digital solutions. The Company operates through four segments: Light Vehicle Drive Systems, Commercial Vehicle Drive and Motion Systems, Off Highway Drive and Motion Systems and Power Technologies.
market value: $3.1 billion ($22.11 per share)
Activist: Carl Icahn
Percentage ownership: 9.91%
average cost: $20.95
Activist Comment: Carl Icahn is the grandfather of shareholder activism and a true pioneer of strategy. Although he’s not slowing down at all, he recently struck an agreement with his son, Brett Icahn, to rejoin the company as a possible successor. Brett plans to use his father’s preferred approach of pushing companies into changes aimed at boosting their stock prices, though he hasn’t ruled out friendly bets either. This is not a departure from the strategy that Carl has been successful with for many years. It can be friendly (e.g. Apple, Netflix) or confrontational (e.g. Forest Labs, Biogen), often depending on management’s response. Brett is a formidable activist investor himself, not because he’s Carl’s son, but because he has a long track record of highly successful activist investing. The Sargon portfolio he once helped lead at Icahn was around $7 billion and included hugely profitable investments in companies like Netflix and Apple. The Sargon portfolio has clearly outperformed the market with an annualized return of 27%. Before that, however, Brett started at Icahn in 2002 as an analyst and later oversaw campaigns such as Hain Celestial (280.3% return vs. 46.7% for the S&P 500), Take Two Interactive (81.5% vs. 64.5% for the S&P 500). ) and Mentor Graphics (106.4% vs. 79.4% for the S&P 500).
On January 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 of the Board of Directors and agreed to add them to its list of nominees for directorship Election at the 2022 annual meeting. Icahn has agreed to comply with certain standstill provisions until he no longer has directors on the board.
Icahn has tremendous experience in the automotive industry and currently owns and operates Icahn Automotive, which accounts for 28% of total Icahn Enterprises (“IEP”) net sales. Icahn Automotive was largely built through acquisitions. Icahn began as an investor in Federal-Mogul in 2001, eventually acquiring the entire company by 2017. Icahn also acquired substantially all of the US auto parts assets of Uni-Select, Inc., a leading auto parts distributor for domestic and imported vehicles; Pep Boys – Manny, Moe & Jack, a leading aftermarket provider of automotive service, tires, parts and accessories in the United States and Puerto Rico; the Precision Tune Auto Care franchises; and American Driveline Systems. Icahn eventually sold Federal-Mogul to Tenneco for $5.4 billion in 2018, and today Icahn Automotive consists of Pep Boys automotive aftermarket retail and service chain, Auto Plus automotive aftermarket dealers, Precision Tune Auto Care owned and franchised Auto Care Automotive Service Centers and AAMCO Total Franchise Service Centers. Icahn Automotive businesses have a combined workforce of more than 22,000 employees, more than 2,000 company-owned and franchised locations, and 25 distribution centers throughout the United States, Canada and Puerto Rico.
Icahn is not only knowledgeable about this industry, but 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 proceedings. Icahn became a shareholder again in Q4 2020 and filed a passive 13G on February 4, 2021 with a 7.5% interest. Since then, his intent changed from passive to active and he submitted this 13D when he held two board seats at the company.
There’s no doubt that Icahn’s two portfolio managers, Brett Icahn and Gary Hu, will step down as value-added directors because they not only have industry experience, but are also shareholder directors — both of which alone are valuable for a director, but it is very valuable to rarely have a director with these two attributes. So if that’s all Icahn is doing with this investment from an activist perspective, he should create significant value for shareholders.
However, the elephant in the room is hard to miss. Icahn built its auto industry on acquisitions, and Dana appears to be a very good fit for IEP’s auto business. In addition, IEP states that its strategy in its automotive segment is to continue to grow commercial parts sales and its automotive service business, and it will continue to consider strategic alternatives in its automotive aftermarket parts business to add value to maximize. When Icahn acquired Pep Boys, he also stated, “We believe that with our abundant resources and industry knowledge, we will be able to grow this business and take advantage of consolidation opportunities, which will benefit customers, manufacturing partners and employees as well as our shareholders.” So it’s hard to believe that Icahn isn’t at least considering Dana as a potential acquisition or merger candidate, but as an investor who has always prioritized corporate governance and shareholder value, we expect he would only consider the company after a sale process in the event of an acquisition by an independent investment bank and a face-to-face negotiation, with the Icahn directors stepping down.
Ken Squire is Founder and President of 13D Monitor, an institutional research service on shareholder activism, and Founder and Portfolio Manager of 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist assets. Dana belongs to the fund.