Bill Ackman

If it ever looks like I’m trying to tell you what Carl Icahn is up to with Herbalife, don’t listen to me. I have no idea. How could you? Icahn now owns ~13% of Herbalife’s stock with a ~$36 basis, and he is somewhat constrained from selling it in the next six months by short-swing profit rules. So he can’t sell. He can buy, of course. But after today he can’t buy more than 25%:

Herbalife today announced that it has reached an agreement with Carl C. Icahn …. As part of the agreement, Herbalife will increase the size of its Board of Directors from nine to eleven members immediately before the 2013 Annual General Meeting of Shareholders [and] will nominate two individuals to the Company’s Board of Directors, designated by the Icahn Parties and approved by the Company’s Nominating and Corporate Governance Committee.

Under the terms of the agreement, the Icahn Parties have agreed to, among other things, abide by certain standstill provisions and vote their shares in support of all of the Board’s director nominees. The Icahn Parties have the right to increase the size of their ownership position in Herbalife up to 25% of the outstanding common stock.

The standstill is for real; Icahn filed the agreement with his 13D/A and it’s an amusingly strong-form standstill that prohibits him from buying more than 25% of the stock, launching a tender offer, proposing a merger, ” encourag[ing] or facilitat[ing]” anyone else doing the same, or, my favorite, “request[ing] that the Company or any Representative of the Company, directly or indirectly, amend or waive any provision of this [standstill] (including this clause (g) [the one that says he can't ask]).” He can’t even ask to be allowed to ask to buy Herbalife!1 Read more »

Bloomberg: Do you think he’s made a mistake on this one? Icahn: Well, if you look at his record lately, he has made a few very big mistakes. I am not going to say just this one. I am not here to question Ackman. I do not want to get pulled into that again…I look at it as a great opportunity. Ironically, I thank him for giving it to me. Does not mean I like him…I do not respect him. I do not like him. [BloombergTV, earlier]

In 1984, when he was a junior at Horace Greeley High School, in affluent Chappaqua, New York, he wagered his father $2,000 that he would score a perfect 800 on the verbal section of the S.A.T. The gamble was everything Ackman had saved up from his Bar Mitzvah gift money and his allowance for doing household chores. “I was a little bit of a cocky kid,” he admits, with uncharacteristic understatement. Tall, athletic, handsome with cerulean eyes, he was the kind of hyper-ambitious kid other kids loved to hate and just the type to make a big wager with no margin for error. But on the night before the S.A.T., his father took pity on him and canceled the bet. “I would’ve lost it,” Ackman concedes. He got a 780 on the verbal and a 750 on the math. “One wrong on the verbal, three wrong on the math,” he muses. “I’m still convinced some of the questions were wrong.” [Vanity Fair]

Dueling billionaire investors Carl Icahn and William Ackman, who have gone toe-to-toe in a battle over the legitimacy of Herbalife Ltd., were silent Wednesday as the nutritional-supplements maker held a conference call to discuss its better-than-expected fourth-quarter earnings. Mr. Ackman has bet against the company’s shares, setting up a more than $1 billion short position accompanied by a high-profile campaign questioning Herbalife’s business and calling its distribution model a “pyramid scheme.” Mr. Icahn, meanwhile, has taken a 13% stake in the company and said he intends to discuss potential strategic alternatives with the company, which he insists has significant growth potential. The battle has played out in the public eye, notably when the two men sparred last month in a televised war of words on business news network CNBC…Neither Mr. Ackman nor Mr. Icahn spoke on the call. A spokeswoman for Mr. Ackman’s firm declined to immediately comment on the matter. A spokeswoman for Mr. Icahn said he was unavailable to comment. [WSJ, related, related]

Have you had enough Icahn and Ackman and Herbalife yet? Probably, right? Still, I should mention two more things, mostly because I kind of got them wrong this morning.

The first thing is that I thought Icahn is long via options, rather than shares, for financing reasons. He sometimes uses this method to avoid HSR antitrust filing requirements, but here he actually did the filing and waited the thirty days to buy more shares. But in fact there are a number of thresholds that require pre-acquisition filing; Icahn seems to have waited to cross the $70-ish million threshold in physical shares, but he’s now re-filed to get permission to take physical possession of the full ~$500-ish million that he currently owns synthetically. (And more, potentially.) Icahn said on CNBC this afternoon that he’s planning to convert into physical shares as soon as he gets that approval.1 If true, that suggests relatively little focus on leverage and cheap financing, and relatively significant focus on short squeezing and fucking with stock borrow. So that’s exciting for everyone.

Second: I said this morning that one option that might be appealing for Icahn would be to take profits on his position by dumping some of the stock after this morning’s run-up.2 Nope! Not appealing! Terrible idea! Don’t do it Carl!3 Read more »

“Look, I’m in this to make money. That’s what I do. The fact that it might hurt Ackman, I’m not going to run and cry and do penance. You might like to say that it’s the strawberry on top for me, that’s up to you.” [Barron's, related, earlier]

Yesterday Carl Icahn filed a 13D disclosing a ~13% synthetic stake in Herbalife. There are three possible reasons that Carl Icahn might want to own half a billion dollars worth of Herbalife stock:

  • as a value investment in a company with strong cash flows and a beaten-up stock price,
  • as a toehold in preparation for launching a tender offer to take the company private, or
  • to fuck with Bill Ackman.

If you watched Icahn and Ackman square off on CNBC, or read the transcript, or witnessed some sort of dramatic recreation of it, I think you’ll join me in assuming it’s sheer fuck-with-ery. “Cry, Jewish boy, cry!,” he probably said as he signed the 13D. But who knows? He’s up $80+ million as of this morning, so two birds with one stone.

A curiosity of this position is that it’s mostly synthetic: Icahn owns about 2.5 million actual shares and about 11.5 million call options. Like so:

As we’ve discussed before, this is Icahn’s standard M.O., and it’s not because his dealers are dummies who will sell him levered upside on a stock that he can move with just a lift of his magnificent eyebrows. Read more »