Hedge fund manager steps up attack on Herbalife
NEW YORK — It might be easy to make a movie about Bill Ackman, the handsome and confident Wall Street tycoon whose actions over the last two months have won him as many friends as they have enemies.
Whether he’d be the hero or the villain depends on whom you ask.
In his own eyes, Ackman is the righteous investor, protecting low-income people from the clutches of health food-and-supplement maker Herbalife Ltd. by betting $1 billion that the Los Angeles company will fail. To Herbalife, he’s a nemesis making specious allegations about a company he knows little about, just to make a buck.
Ackman launched a second public-relations assault against Herbalife on Thursday, releasing more than 270 detailed questions and mocking Chief Executive Michael Johnson for comparing the company to the Girl Scouts.
Ackman’s 40-page missive also questioned whether Herbalife was complying with a 1986 injunction won by the California attorney general’s office that prohibits the company from paying commissions for recruiting. A spokeswoman for Atty. Gen. Kamala Harris declined to say whether her office was investigating the matter.
Wall Street seemed to shrug Thursday; Herbalife’s stock rose 13 cents, or about 0.4%, to $35.92. The muted stock movement comes the same day Ackman was to face his own investors at his hedge fund Pershing Square Capital Management’s annual dinner in New York.
Either way, Ackman’s assault highlights the cutthroat brawls of high finance and thrusts into the spotlight discussions that might otherwise take place behind the closed doors at his marble-and-glass office suite overlooking Central Park. Rather than investing in Herbalife to improve the company, Ackman “shorted,” or bet against the stock, and is very publicly trying to help bring the company down.
“I believe it’s good for America for this company to disappear,” Ackman said in an interview.
He’s part of a new breed of activist investors who make public their doubts about a company and put money on the idea that such attention will help topple the company. It’s an aggressive tactic, but in the world after the financial crisis, many investors argue that a little skepticism about business is a good thing.
“This idea of people publicly raising issues at companies and short-selling them is really something that we’ve seen come into the public only really since the financial crisis,” said Ron Orol, author of “Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking On the World.” “The financial crisis exposed a lot of problems at companies, and so some activists build on that information and publicly try to explain their case.”
Because they profit on companies’ declining fortunes, short sellers do not always have the rosiest of reputations. But Ackman sees greater need for short sellers on Wall Street.
“If you knew [Bernard] Madoff was a fraud, and you had done 18 months’ worth of work and you knew it for a certainty, and you just kept your mouth shut … I think you have a moral obligation,” he said. “A whistle-blower-slash-short-seller is a healthy thing for the market and a good thing for the world.”
Other money managers disclosed positions on either side of Ackman’s bet. Among them are Dan Loeb, founder of the hedge fund Third Point, who sided with Icahn, and Whitney Tilson, co-founder of T2 Partners, who also reportedly shorted Herbalife.
Ackman’s crusade against Herbalife seems uniquely passionate and has inspired an equally personal response. Corporate raider Carl Icahn recently slammed Ackman on live TV in what money manager John Hempton went so far as to call “hedge fund porn.”
At a recent dinner of 15 or so hedge fund investors, discussion turned to the odd nature of the battle between Icahn and Ackman, said Wilbur Ross, the billionaire best known for buying out steel and coal companies.
“I’m a bit surprised that this is happening,” Ross said. “Carl has a good track record. Loeb has a good track record. Ackman has a good track record. At the end of the day, Wall Street people will be interested in who got what and how.”
Ackman casts his campaign as a matter of conviction, saying he has plenty of other investment opportunities.
“Why do I feel a moral obligation here?” he said in the interview. “The answer is: Because this company is harming millions of people, and it’s done it for 32 years, and the list of heart-[wrenching], disastrous life stories of the people that this company has wrecked is incredible.”
Herbalife has angrily fought back against Ackman’s claims.
In a statement Thursday, the company said: “Herbalife is a financially strong and successful global nutrition company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of consumers since our founding in 1980. Pershing Square’s latest tome is motivated by a reckless $1-billion short bet.”
Keeping the spotlight on his case against Herbalife seems to be central to Ackman’s strategy.
“A lot of times, hedge fund managers are very secretive,” said Simon Lack, an investor with SL Advisors and the author of “The Hedge Fund Mirage: The Illusion of Big Money and Why It’s Too Good to Be True.”
“In disclosing this, Ackman is hoping he’s going to get the government to investigate,” Lack said. “It’s clever — it all sounds like it’s in the public interest, but it’s obviously in his interest too.”
Going public could also draw attention from rivals, and in the case of Icahn, a fellow investor with a grudge. The two have bad blood stemming from a legal dispute a decade ago involving money Ackman said Icahn owed him from a deal. Ackman sued Icahn and eventually won in court.
Their half-hour exchange, broadcast live on CNBC on Jan. 25, made the battle appear even more bitter. Some analysts even speculated that Icahn was trying to send the stock shooting up so that Ackman would lose money.
“Since [Icahn] hates Ackman, it seems that he’s coming out and trying to push that stock higher because he knows Ackman is very vulnerable,” said Chris Stuart, founder and chief executive of Shortzilla, a Boston-area research firm.
In an interview, Icahn did not want to talk about Herbalife. But he was happy to talk about Ackman. “I would be happy if I could be as confident about one thing as Ackman is about everything,” Icahn said.
Ackman sees their war of words as merely a sideshow. What’s really at stake, he said, are Herbalife’s distributors, whom he believes the company is defrauding of their life savings.
“It’s not really fun for me,” Ackman said. “I’m doing this because I think it’s right.”
Times staff writer Stuart Pfeifer in Los Angeles contributed to this report.
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