If you have an opinion on whether Carl Icahn or Bill Ackman got the better of today’s amazing CNBC shoutfest over Herbalife, you have a number of options for expressing it. We’ve had like four posts so, y’know, comment away, but if you want something more formal both CNBC and Business Insider have polls you can vote on. Also if you listen to CNBC’s video you can hear in the background a bunch of men who, when not oohing and ahhing over cursing on television, spend their days running around pretending to trade stocks. Don’t be fooled, though: you can actually trade stocks, even Herbalife’s. If Icahn-Ackmania changed your view of Ackman’s short thesis on Herbalife, feel free to express that changed view with money.
As of 4pm-ish, BI and CNBC both give Ackman the win. Mr. Market goes the other way, though without overwhelming enthusiasm.1
This makes sense – as a former high school debate judge I’d score this one for Ackman too. On style alone: Icahn apparently did his interview in a zen garden surrounded by a team of silent and efficient researchers; Icahn prepped by going to a Queens schoolyard and getting in fights.
But on substance, too. Icahn’s main claim, that shorting a company and then saying mean things about it is “manipulation” or otherwise bad form, is sort of crazy; Ackman’s zen researchers helped him point out that Icahn did just that at Ira Sohn in 2003. More important, though: how does Icahn’s “you can be short, but you can’t tell anyone” thesis – as he says, “If you’re short, you go short and hey, if it goes down you make money” – hold up when applied to long investing? I suppose “If you’re long, you go long and hey, if it goes up you make money” is one investing approach but it is certainly not Carl Icahn’s. This is a guy whose career consists of buying stocks and then trying to create catalysts. He’s so comfortable talking his book that he’ll talk up Herbalife just for giggles, whether or not it’s in his book.2 (That said, Icahn scored a point when he raised his magnificent eyebrows at the timing of Ackman’s short-HLF presentation – just before marking his books for incentive-fee purposes at the end of the year.)
And while both sides landed blows in the fussing and feuding over Hallwood, a tiny 2003 real estate deal that they’ve been kicking around forever, I give Ackman the win on points here too. Icahn bought Ackman’s shares and agreed to “schmuck insurance,” giving Ackman half his profits if he resold within three years.3 Icahn claims that this was never intended to apply to him selling out involuntarily via merger, but it is hard for me at least to imagine a sophisticated businessman actually thinking that. A string of courts agreed. This is old, pointless news, though it actually has some present-day resonance: whatever its interest or lack thereof to Herbalife investors, it might be relevant to former CVR Energy shareholders, who are sitting on some very valuable Carl Icahn-written schmuck insurance. Valuable if he’ll pay it out, that is.4
But here’s the thing: you don’t care about my debate-judge scoring of a CNBC shoutfest. You don’t even care about your debate-judge scoring of a CNBC shoutfest. Nothing in the preceding three paragraphs mentioned Herbalife. (Ackman did, to be fair, though he didn’t add much to his argument, while Icahn mostly did not, though he did throw out the vague possibility of a tender offer to squeeze the shorts. Ackman amusingly took this prediction as a threat that Icahn would tender for the company, which would be head-explodingly wonderful, oh God please let it happen.)
Who cares if Ackman is a crying Jewish boy?5 Who cares if Icahn is a hypocrite? Who cares who wanted to be friends with whom when? Ackman and Icahn, obviously, but that’s about it.
People have argued that whatever Icahn-Ackmania is, it’s not about Herbalife any more, and I guess that’s true. But it makes me sort of sad. It’s so cynical! Ackman has hundreds of millions of dollars of his investors’, and his own, and his favorite charity’s money on his Herbalife bet. Icahn … unclear what his P&L angle is here, he may be running purely on grudge. Still, what is going on?
I don’t know. There’s a small class of investors whose position-taking is partially self-fulfilling: Warren Buffett buys a stock and it goes up; David Einhorn shorts it and it goes down. This magic works if it’s used sparingly; like Facebook, if you try too aggressively to monetize it it loses its charm. You gotta keep being right. If you’re [long | short], you go [long | short] and hey, if it goes [up | down] you make money. If not, your name becomes less useful to conjure with.
Ackman and Icahn both belong to that class; Herbalife’s stock price path – drop on Ackman’s short, pop on Icahn’s rumored long – demonstrates as much. And when you’re in that class – and have even, now and again, profited from it – it’s easy to confuse the power of your track record with the power of your personality. “If I can make a stock move just by disclosing my position, imagine what I could do by shouting about it on CNBC.” Less than you’d think, it turns out.
CNBC poll (closer):
2. Rumored yes, he won’t confirm or deny – ESPECIALLY NOT TO CNBC. Who cares, honestly, who cares.
3. The clause is Section 1.4 of the agreement, which Ackman helpfully linked in his press release. Incidentally I recommend this rather amazing 2010 Bloomberg article about schmuck insurance. A sample:
Schmuck, also spelled shmuck, is a coarse Yiddish word for penis, said Paul Glasser, associate dean of the YIVO Institute for Jewish Research in New York. (Shmo is a gentler, Americanized variation, according to Leo Rosten’s book “The Joys of Yiddish.”)
The meaning has shifted in English usage from being an aggressor to being a fool or loser, Glasser said in a telephone interview.
“The insurance is you won’t be a victim,” he said.
The concept is more universal than Yiddish, a language with roots in German and used by Eastern European Jews and, with diminished frequency, their descendants. The British equivalent is “anti-embarrassment clause,” said Camille Douglas, an adjunct associate professor at the Columbia Business School in New York and a specialist in international real estate finance.
4. Quick recap: Icahn bought ~80% of CVR for $30 plus a promise that if the company was acquired within fifteen months (viz. by fall 2013) for more than $30, he’d give the cashed-out shareholders the upside on their shares above $30. (100% of the upside – not 50% as he did with Ackman in Hallwood.) I have a pet theory that, unlike in Hallwood, Icahn’s CVR document is (badly) drafted to require him to pay the upside even if he acquires the rest of the company, and that that may help explain why he withdrew his mid-2012 offer to do just that. How does that theory fit with the Hallwood precedent? What if he bought the rest of the company and just told the shareholders he’d see them in court? “I know what I meant, I don’t care what the contract says.” Etc.
5. Icahn really did say that. Just FYI. We’re all Jews here though so it’s okay.