Do you love investing? Do you love drama? Do you love playing along at home? Well, get your popcorn and mega sized adult beverage ready. Find a comfortable seat and tune in, because we are just months; if not weeks away from watching one of two Wall Street billionaires lose roughly ten thousand times more money than any of us would have ever accumulated if we all lived to be 500 years old!
That's right, folks! That nutty Bill Ackman and crazy Carl Icahn are at it again! Saying these two guys have a dislike for each other would be like saying East Coast and West Coast rappers "occasionally have spirited debates and tussle with the quagmire of misunderstandings."
It's been only days since the weigh-in, where Ackman and Icahn appeared on CNBC's Fast Money, hurling insults and attacking each other while Wall Street faithful cheered them on, hooting and hollering in response to their conversation from the NYSE exchange floor, audible in the background. CNBC reported :
The battle began with a phone interview with Ackman alone, who was responding to attacks by Icahn the day before over Ackman's claims that Herbalife (HLF) is a "a well-managed pyramid scheme."
"Our goal here was to shine a light on Herbalife," Ackman said on "Fast Money." "Frankly, Carl did me a favor by picking on me."
Icahn quickly called in to the show and struck back.
"Ackman is a liar," he said. "He's got one of the worst reputations on Wall Street."
Reported one Wall Street Journal blog :
"I can't recall a situation where everybody pretty much stopped, watched and listened to two big Wall Street names go at it back and forth like that," Jonathan Corpina, senior managing partner at NYSE floor broker Meridian Equity Partners, told MarketBeat.
Two proverbial masters of the universe attacked each other on live television, like a couple of school kids. The Icahn/Ackman smackdown lasted nearly 45 minutes uninterrupted, the kind of air time usually reserved for major breaking news. The fight was only tangentially about Herbalife Ltd. They immediately took it back to a decade-old deal that has been through numerous court rulings.
For the market, it was a classic moment. With every big zinger from Ackman or Icahn, you could hear hoots erupting on the floor of the NYSE (the show is broadcast from the exchange), after about seven seconds - the time it took the broadcast to travel down to the floor's sets.
In this vein, I want to take a minute to disclose how wrong I was in my latest article stating reasons to short Herbalife. Although, I remain bearish on the company, I was convinced that Icahn had abandoned his stake in the company or never had one to begin with. I stated:
1. It is obvious Carl Icahn is either out of the Herbalife game, or no longer confident in his long position.
Ichan did not sound confident at all in a long position in Herbalife during Friday's CNBC Hedge Fund smackdown 2013 sponsored by the World Wrestling Federation and brought to you by Fast Money. Ichan was constantly asked about Herbalife by both the host and Bill Ackman, and he seemed to continually dodge the question.
WAPNER: LET'S MAKE GOOD USE OF IT OR BETTER USE OF IT THEN. CARL, WHY DON'T YOU JUST COME CLEAN ON THE HERBALIFE THING? ARE YOU LONG OR NOT? THE WHOLE MARKET KNOWS OR SUSPECTS YOU ARE.
ICAHN: HEY LISTEN, I DIDN'T GET ON TO BE BULLIED BY YOU. IF I CAN TALK, LET ME TALK. BUT I DON'T NEED YOU TO -- HELLO?
WAPNER: YEAH, I'M HERE. NO ONE'S BULLYING YOU, CARL. I MEAN, YOU'RE THE ONE WHO CALLED IN TO OUR SHOW TO TALK TO BILL ACKMAN. AND THE PRINCIPLE ISSUE IS THE HERBALIFE THING.
ICAHN: NO, NO. LISTEN TO ME. I WAS CALLED IN BY MAX MEYERS TO HAVE A CONVERSATION, NOT TO ARGUE WITH YOU. IF YOU WANT TO TAKE -- HELLO?
WAPNER: YEAH, WE'RE LISTENING.
ICAHN: IF YOU'RE LISTENING, LET ME TALK. YOU KNOW, I WANT TO SAY WHAT I WANT TO SAY. AND I'M NOT GOING TO TALK ABOUT MY HERBALIFE POSITION BECAUSE YOU WANT TO BULLY ME.
WAPNER: I'M NOT BULLYING YOU. I'M ASKING THE QUESTION EVERYBODY WANTS TO KNOW, CARL THAT'S ALL. BUT YOU CAN MAKE YOUR STATEMENT.
ICAHN: I'M GOING TO TALK ABOUT WHAT I WANT TO TALK ABOUT.
ICAHN: IF YOU WANT TO TAKE THAT POSITION I WILL NEVER GO ON CNBC, YOU KNOW. YOU CAN SAY WHAT THE HELL YOU WANT.
ICAHN: BUT I'M GOING TO TELL YOU, I'M GOING TO TALK ABOUT WHAT ACKMAN JUST SAID ABOUT ME, NOT ABOUT HERBALIFE. AND I'LL TALK ABOUT HERBALIFE WHEN I GOD DAMN WANT TO, NOT WHEN YOU ASK ME.
Instead of offering up confidence in his long position, he never even admitted to still having a long position in the company. As Ackman pointed out, he could have bought on Ackman's bear raid, rode HLF to $45 and sold off.
What part of "I'll talk about Herbalife when I god damn want to" screams long term confidence from the Ichan camp?
Icahn instead ominously alludes to the potential that HLF could be the "mother of all short squeezes", which is extremely unlikely if Ichan is already out of the game. With Icahn out of the way, Ackman and his followers are free to continue publicly going after the company and riding the short wave down to the $20's again; if not lower.
Icahn said he's done a great deal of research on Herbalife and that he doesn't make investments like this lightly in an interview on CNBC's "Fast Money." Still, he didn't let the Ackman feud go, saying that Ackman is off base in what he's been saying.
Ackman was quick to retort before the weekend:
"We invest based on a careful analysis of the facts. After 18 months of due diligence, we have concluded that it is a certainty that Herbalife is a pyramid scheme. Our conclusions are unaffected by who is on the other side of the investment. Our goal was to shine a spotlight on Herbalife. To the extent Mr. Icahn is helping achieve this objective, we welcome his involvement."
With that, we here at QTR fight night have scored this recent round a 1-1, despite our bearish sentiments on Herbalife as a company. Ackman seemed cool, calm, calculated and collected in his response to Icahn's disclosure. Ackman is clearly a man who trusts his own due diligence, and I respect him digging his heels in here against the big bad Carl Icahn.
So, onward we roll. Who will be the victor here? There can be only one.
Play Along and Keep Score at Home
This is going to be great to watch unwind.
12/20/13 - Ackman discloses his monster short position in Herbalife, calling company a pyramid scheme
1/10/13 - Herbalife CEO casts doubt on Ackman's motives for shorting and calling company a pyramid scheme.
1/25/13 - Icahn and Ackman slam each other on Fast Money, Ackman calmly presenting his arguments and Icahn belligerently spewing out curse words.
2/14/13 - Icahn's 13D discloses a monster 13% position in Herbalife, shares immediately rocket 20% in after-hours trading.
2/15/13 - Ackman responds and calmly reaffirms his short position in the company.
Here's a quick snapshot as to how the stock has fared since the beginning of this feud:
Why is this a neat opportunity to invest? If you're anything like me, you know this is just as good as backing a horse and then watching him race. You know your investment is going to get coverage, one way or another, every single day until this company either somehow forces a squeeze or goes under. Coverage means volatility, volatility means fun with options spreads.
One has to wonder if Icahn is ignoring what this investor feels to be the obvious (that HLF is a pyramid scheme) in order to try and exact revenge on his long term rival? Will the young Bill Ackman's due diligence and steadfast line in the sand leave him as the David that crippled the Goliath in Carl Ichan? There's many ways to force a squeeze aside from the stock simply going up -- recapitalization or something forcing an audit of the stock could be absolutely crippling for Ackman. On the contrarian side of things, if a regulator gets involved with Herbalife or earnings don't continue going well, the downside could be exponential.
I Remain Bearish Here
Going forward, my sentiment towards Herbalife remains bearish. As I said in my previous article:
If I were to introduce you to a penny stock today, tell you all of its major accounts are in the Cayman Islands, a massive hedge fund manager is publicly short, and that it relies on multi-level marketing to survive, would you invest in it? I wouldn't.
This is the same way I feel about Herbalife, even if it is trading at an overvalued $40/share. To me, the fundamentals feel the same whether it's trading at 0.001 or $40.
There is serious risk here for the common investor; much more so than with many other big board stocks. Herbalife is not a stock worth being long in for any amount of time and as the public starts to figure that out, it'll be a great stock to have a short position in.
To me, Icahn sounds like he's in this without paying mention or mind to the fundamentals of the company. Sure, he's said a decision like this doesn't come lightly, but his sentiments on the January 25th show make him sound like he is in this for one reason : he wants blood versus Bill Ackman.
In regards to their international business accounting for 80% of their revenue, I'd echo contributor Alex Heisenbergs sentiments again:
What is going to happen when the international well runs dry? Fellow investor Alex Heisenberg has pointed out to me that he feels there's a direct correlation between the success of multi-level marketing companies and the downturn in the economy. He feels that MLM companies will do significantly worse when the global economy takes a turn for the better, and I agree. Where is Herbalife going to find distributors when there's "real" jobs available?
It's my intention to continue to cover this saga as it progresses. Surely you've got some opinion on Icahn or Ackman and/or sentiments on how Herbalife is going to fare as a company. Why not pick your "horse" and back them with a small investment. Apathetic about the whole debacle? Take a small stake, sit back, and watch for fun. Folks, this is going to be the Super Bowl of investing this year. This is Mayweather vs. Pacquaio -- finally. Best of luck on whatever side you're on and enjoy the ride!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.