Editor’s note: This article was first published in June 2013 as news. Ackman closed out his Herbalife short in early 2018 after heavy losses, and Herbalife was never declared a pyramid scheme, though in 2016 it agreed a 200 million dollar settlement with the US FTC. The share positions cited are 2013 figures.
Activist investor Bill Ackman spoke to the Financial Times, which asked him about the criticism he has received for his strategy of trying to bring down Herbalife. Ackman replied that if he manages to bring Herbalife down, it will be the greatest achievement of his life, because he still believes that Herbalife is a pyramid scheme that takes advantage of low-income people, and that sooner or later its share price will go to zero dollars.
Bill Ackman publicly announced that he had taken a short (bearish) position of 20 million Herbalife shares, although he pledged to donate 100% of the profits to charity.
Of course, for now the market is ignoring Bill Ackman’s warning: since Ackman bet against Herbalife, the shares have risen more than 8%. On the other side of the field we have Carl Icahn, chairman of Icahn Enterprises and Ackman’s greatest rival, who bought 16 million Herbalife shares to prove Ackman wrong, claiming that Bill Ackman will suffer the worst short-selling disaster in history, since the bet was worth close to 1 billion dollars.
Carl Icahn believes that Herbalife’s business has been working for many years, and despite the odd stumble in some quarter’s results, Herbalife will keep going strong.
This is what we would call a duel of investment titans, since both Ackman and Icahn have excellent track records as investment managers. It is true that I don’t know of any other case in the markets where a manager running more than 12 billion, Bill Ackman, has taken such an interest in bringing down the business of a listed company while another investment heavyweight raises the stakes against him just to prove him wrong.
“What Ackman is trying to do is show that Herbalife has no regular customers and that its business is fed only by people who keep rotating through as ‘recruits’. If he manages to prove that, the US authorities could consider Herbalife’s business a pyramid scheme rather than multi-level marketing. The company flatly denies this.”
Featured image: Senate Democrats, CC BY 2.0, via Wikimedia Commons.
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