Herbalife (NYSE:HLF) is a vitamin supplement and weight management company that has become embroiled in a very visible conflict between Bill Ackman of Pershing Square Capital and other prominent hedge fund investors, such as Carl Icahn, Daniel Loeb and others. Ackman's shorting of the stock has led to a battle royale on financial cable TV stations.
At the heart of the public conflict is not just the worth of Herbalife, but also a profound resentment of Ackman's arrogance and bravado. At 46, Ackman is younger than many of the stalwarts of the hedge fund game, and his pomposity has rubbed many people the wrong way. Other hedge fund investor find his sense of superiority off-putting, especially given that Ackman has had a number of failures, such as Target (NYSE:TGT), J.C. Penney (NYSE:JCP) and Gotham Golf. His stand against Herbalife gave his competitors a convenient opportunity to not only make money on a rise in the stock price, but also to give the upstart a hearty poke in the eye.
Ackman's campaign against Herbalife stemmed from information he received from a report from Christine Richard and Ann Schulman, the so-called "Indago Girls" who provide in-depth information for a number of hedge fund companies. After some consideration, Ackman decided to go with the Indago Girls' recommendation to short the stock, in spite of the obvious risk. With a number of other hedge fund managers lined up on the other side, he actively worked against Herbalife, calling attention to the minuscule number of distributors who were able to make the large amounts of money promised by the company. The stock began to fall precipitously, and it looked as if Ackman's decision to short the stock would pay off.
When Carl Icahn, with an estimated $20 billion in net worth decided to join Daniel Loeb in fighting the short sale, the fight began to go public. Icahn already had a rancorous relationship with Ackman resulting from a deal in 2003. He aired his complaints against Ackman on Bloomberg TV. Ackman countered on CNBC, defending his position on Herbalife. Clearly, the conflict had become personal.
However, bolstered by a significant amount of cash on hand, Herbalife continued to fight back. Add to this mix of fevered money-makers, Michael Johnson, the CEO of Herbalife, Johnson came to Herbalife after a 17-year stint with the Walt Disney Company in the Disney International division. He is a savvy businessman that does not intend to allow outsiders to direct the destiny of a company he has spent the past 10 years building to prominence.
Johnson's willingness to go to the mattresses for Herbalife's reputation and stock value will make it an interesting company to watch for the coming months. The personalities of the principal players in this drama has many investors making their stock bets on who will win the power game. Odds are that Icahn, with his wealth of experience, will again come out on top. After this week's strong earnings report, the stock saw a good uptick before leveling off.
We would put our money on Johnson and Icahn for the long term.