Bill Ackman Has A New Mortal Enemy

John Hempton, come on down.
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Unwelcome at Marea.

When Bill Ackman and Carl Icahn removed their hatchets from each other’s backs and buried them, we began to wonder who would try to fill Uncle Carl’s shoes in trolling the Pershing Square chief.

What we did not know at the time was that someone Down Under had already thrown his hat into the ring long before, his hatred awoken by the most powerful force of evil in the Ackman universe; Herbalife.

It seems as if John Hempton felt a little misled by Ackman’s demagoguery vis-à-vis the diet-shake company, and has spent the last three-plus seeking his revenge on Ackman. Through a series of tart e-mails that he sometimes puts up on his blog, Hempton has maintained a powerful campaign of rage.

And the emails are rather fantastic. Like there was this one time last month when Hempton went all Mr. McGuire on Ackman about Philidor, but before Philidor became a thing...and Ackman didn’t get it.

On Oct. 15, only a few days before a story from an investigative journalist, Roddy Boyd of the Southern Investigative Reporting Foundation, and a report from short seller Andrew Left of Citron Research, exposed Valeant's ties with Philidor and questioned the company's accounting and its behavior towards insurers, Hempton had teased Ackman in an email. In a riff off the famous exchange from the movie, The Graduate, Hempton wrote to Ackman "I just want to say one word to you. Just one word … Philidor.”

Ackman, who has never met the Australian, replied: "Not sure I understand. Perhaps you could explicate further," according to an email released by Hempton. Philidor's relationship with Valeant had hardly ever been referred to publicly by either Valeant or its critics until then.

The best thing about this fight? It is a battle without end, at least according to Hempton.

Hempton, who helped to reveal a number of accounting frauds among Chinese stocks listed in North America in 2010-2012 and writes a blog at brontecapital.blogspot.com, is very open about his distaste for Ackman. When asked last week if he had ever met Ackman he said he would prefer to "hang out with drug dealers and prostitutes…."

But he contends it is a viable investment strategy to deliberately take the opposite path to Ackman. "You can goad him and he makes his positions bigger," Hempton said. "That is even better to trade against. It's not a personal obsession - it's a way of making money."

But why would Bill even bother with some Antipodean nobody who manages less money than Bill gains or loses (mostly the latter, lately) on the Québécois pharma alone? Especially when he has some bigger fish to fry on the Valeant front.

In an interview Saturday, Munger tore anew into the besieged drug company, calling its practice of acquiring rights to treatments and boosting prices legal but “deeply immoral” and “similar to the worst abuses in for-profit education.” In his role as chairman of Good Samaritan Hospital in Los Angeles, Munger said, "I could see the price gouging.” And speaking as a storied value investor, he said, its strategy isn’t sustainable: “It’s deeply wrong….”

Companies like ITT Corp., Munger said, made money back in the 1960s in an “evil way” by buying businesses with low-quality earnings then playing accounting games to push valuations higher. Investment managers looked the other way. And worse, he added, it was happening again.

“Valeant, the pharmaceutical company, is ITT come back to life,” Munger said at the gathering. “It wasn’t moral the first time. And the second time, it’s not better. And people are enthusiastic about it. I’m holding my nose.”

While Bill really does seem to have trouble getting along with the AARP, it’s not just Warren Buffett’s nonagenarian right-hand man who are braying for Ackman-flavored blood. The analysts are turning on him, too.

Goldman Sachs Group Inc. analyst Gary Nachman on Monday said he sees longer-term damage to Valeant’s business model from the allegations around this company and its failure to disclose its ties to specialty pharmacies including Philidor Rx Services LLC….

“We move to the sidelines until there is further visibility on how management will repair the reputational damage to the company, as well as grow its business effectively in this increasingly challenging environment….”

Jefferies analyst David Steinberg maintained his buy rating but cut his price target by more than 20% to $172 from $224. While Mr. Steinberg commended Valeant for cutting ties to Philidor, he predicted that “shares could be in the ‘penalty box’ until further clarity emerges.”

You can almost hear Ackman scream from 7th and 57th, “It doesn’t make any sense! The guy who was Bill Ackman-ing Valeant just admitted he was Bill Ackman-ing Valeant and was going to stop!”

And yet...

On Friday, the well-known short tweeted that he would unveil a blockbuster report on Monday that would show how “dirty” Valeant is — and sent the stock down 17 percent.

A week earlier, after a Citron report asked if Valeant is a “pharmaceutical Enron” — that is, booking fake sales — shares of the drugmaker fell 40 percent before it recovered half of that.

Left has backtracked on both of those calls — most recently on Monday….

When the report came out with simply a rehash of widespread criticisms of the company, Left called it his “last word” on Valeant.

Valeant’s crisis fuels feud between Ackman and Australian fund manager Hempton [Reuters]
Charlie Munger Isn’t Done Bashing Valeant [Bloomberg]
Ackman’s fund lost 7.3 pct in October, off 19 pct for year [Reuters]
Valeant: Analysts Changing Their Tune [WSJ MoneyBeat]
Andrew Left takes heat after Valeant report no-show [N.Y. Post]

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