Editor’s note: This article was first published in December 2013; Herbalife’s record share price of $76.50, Ackman’s roughly $500 million paper loss on a roughly $1 billion short and Icahn’s position were the figures at the time, and the story moved on later.
2013 has not been a good year for Bill Ackman. As things stand, with Herbalife’s share price at an all-time high ($76.50), he is losing around $500 million on his roughly $1 billion bet against Herbalife. Add the other $600 million or so that Ackman lost on J.C. Penney when he failed to turn the company around, and we imagine this fund manager must be eager for the year to end, a year in which his reputation with his clients must have taken a serious hit.
Herbalife has completed the review of its financial years ended December 2010, 2011 and 2012, and the company is now up to date with its SEC filings, showing clean accounts. That has sent the stock soaring to record highs, something Carl Icahn applauds, while Ackman keeps saying that the audit does not show that Herbalife is not a pyramid scheme.
To begin with, Ackman points out that Enron’s financial statements were audited too, and we all know what happened there. He also keeps saying that it is not up to the auditor to decide whether Herbalife is a pyramid scheme, because, in his view, a pyramid scheme would be proven if most of the revenue came from recruiting new members rather than from recurring distributors. (Read: This man will decide whether Herbalife is a pyramid scheme.)
In case there was any doubt, Bill Ackman says he will keep his short position in Herbalife “to the end of the earth”. In other words, he is not going to try to save the $500 million he still has in play; he is convinced that sooner or later the authorities will shut Herbalife down once they establish that it is a pyramid scheme.
Meanwhile, Carl Icahn keeps saying that Ackman has made a fool of himself and that he will only drag out the “circus” to make an even bigger fool of himself.
Remember that Carl Icahn put a large amount of money into Herbalife, becoming one of the company’s largest shareholders, and by now he has doubled his investment. Icahn still says Herbalife is undervalued.
Which of these two fund managers is right?
See also: 18 truths about investing that hit many people like a bucket of cold water
Featured image: VKras, CC BY-SA 4.0, via Wikimedia Commons.
