One thing I failed to mention in my recent novel about why Herbalife is eventually destined to head south, was the 13D filed by William Stiritz in conjunction with his purchase into the company as a part of the "big 3".
Stiritz makes up 33.3% of the consortium of 80-year-old billionaire investors that have gone long Herbalife (HLF) in the face of what appears to be demonstrable evidence that the company is a pyramid scheme.
As such, he filed the corresponding Schedule 13D on November 19th to denote his major share in the company. If you don't know what a Schedule 13D is, this is the SEC vetted definition.
Schedule 13D is commonly referred to as a "beneficial ownership report." The term "beneficial owner" is defined under SEC rules. It includes any person who directly or indirectly shares voting power or investment power (the power to sell the security).
When a person or group of persons acquires beneficial ownership of more than 5% of a voting class of a company's equity securities registered under Section 12 of the Securities Exchange Act of 1934, they are required to file a Schedule 13D with the SEC. (Depending upon the facts and circumstances, the person or group of persons may be eligible to file the more abbreviated Schedule 13G in lieu of Schedule 13D.)
Schedule 13D reports the acquisition and other information within ten days after the purchase. The schedule is filed with the SEC and is provided to the company that issued the securities and each exchange where the security is traded. Any material changes in the facts contained in the schedule require a prompt amendment.
Bill Stiritz's Schedule 13D referenced herein can be located on Herbalife's website by clicking here.
So, what's all the fuss about?
While a normal 13D, like the one for Icahn and his fifteen trillion funds and holding companies simply denotes the amount of shares purchased and at what price point, Stiritz's filing is so bi-polar it makes Lindsey Lohan look like Bryant Gumbel.
First, the schedule points out that Stiritz sold puts that expire in Jan '14 and Jan '15.
The Reporting Person has sold, in the over the counter market, put options referencing an aggregate of 62,100 Shares, which expire on January 18, 2014. The Reporting Person has also sold, in the over the counter market, put options referencing an aggregate of 12,200 Shares, which expire on January 17, 2015.
The document then goes on to point out that Stiritz went long calls that expire in Jan '14 and Jan '15.
The Reporting Person purchased, in the over the counter market, call options referencing an aggregate of 1,000 Shares, which expire on January 18, 2014. The Reporting Person also purchased, in over the counter market, call options referencing an aggregate of 120,000 Shares, which expire on January 17, 2015.
What follows, is then a 30 page exhibit into Stiritz's trading of Herbalife, which could possibly be the only document known to man that's more complex and confusing than Herbalife's distributor agreement.
Aside from buying shares, which we all know Stiritz has done, he's also sold hundreds of thousands of shares - something that isn't usually the cornerstone of a long-term investor. Some of the 30 pages of the trading exhibit look like this page:
In addition, it's worth noting that he sold 182,000 shares on the day after Ackman's firm restructured their position in Herbalife. Why sell then, when the 13D states clearly that Stiritz has intentions of helping Herbalife fight the "evil shorts":
The Reporting Person's views, advice and counsel may address a wide variety of matters, including ways to further leverage the Company's strong distribution system, potential financing and/or recapitalization strategies, potential stock repurchase programs, and potential strategies for confronting the speculative short position that currently exists in the Company's stock and its attendant negative publicity campaign.
Is Stiritz coming or going? Does he even know?
Is it possible for Ackman to wipe the floor with these three billionaires? I wrote in my last article on Herbalife:
You have to remember that the best in every industry, no matter what it is, are at some point replaced. Sometimes, it's ceremonious, like the turning over of quarterback passing records in football, or when one hall of famer inducts another into the NFL hall of fame.
Sometimes, it isn't ceremonious, like when Leno's timeslot was replaced by Conan O'Brien.
But, hey, that's Darwinism. And we could very well be witnessing a sea change of massive proportions about to take place here.
What we have here is one 48-year-old hedge fund manager in the fight of his life with the three pictured below, worth tens of billions and weighing in at a combined age total of over 1,000.
It's worth keeping an eye on when Stiritz, as well as the other whales in Herbalife decide to sell off their positions. As I've already noted in the past, the likelihood of an LBO is almost non-existent. Assuming they're not going to hold Herbalife to the "ends of the Earth" (which they won't, I assure you), their exit is not only going to be indicative of lost confidence in the company, but will likely lead to a large selloff from retail.
Best of luck to all investors.