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Carl Icahn has been "tooting his horn" of late, notably over the massive returns he has provided over the last year for his investors. He recently performed an analysis of companies where one of his staff sat in on the board and found that annualized returns were 28%. He tooted his horn via Twitter (TWTR), and it was pointed out that Herbalife (HLF) was easily his greatest success in this area.


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In the midst of this, Icahn hasn't been right about everything.

It's important to remember that Icahn can fail. The same article from Forbes pointed out:

It's worth noting, of course, that Icahn's bravado doesn't quite mean he has King Midas effect on every stock he touches. According to his own report, shares of energy company Dynegy fell a whopping 81% from March 9, 2011 to October 1, 2012, the biggest loser of any company on Icahn's list. Other double-digit losers during Icahn years include Voltari's 59% loss from June 17, 2010 through present day, Nuance Communications' 70% drop from October 7 of this year to today and Enzon Pharmaceuticals' 12% decline from May 21, 2009 through now.

So, let's talk about Herbalife for a second. Herbalife was the biggest victory for Icahn (in terms of returns for companies with Icahn Board members), with a 200% annualized return since Icahn won a board seat on April 25. Icahn still owned about 17% of Herbalife's shares as of September 30, according to regulatory filings.

Icahn has made a boatload of money from Herbalife and shorts like Ackman have taken beatings - some on paper, some realized. The question then becomes "how long is Icahn willing to wait and risk it?". No doubt, due to the fact that he has Board members in place, that he is one way or another, privy to information that the public isn't.

With all that cash on paper at a premium of 200%, Icahn would be foolish to not take some off of the table at this point, correct? It'd be tough to find a prudent investor that doesn't agree with this point at least a little.

Additionally, with regards to the Belgian court's decision to overturn its pyramid scheme ruling, no part of the decision has been made public yet, which is interesting. While I'm not necessarily doubting the validity of Herbalife's claims, I - like many others - are anxious and eager to get a hold on the court's decision and give it a read.

It seems like the plaintiff in the case feels the same way.

Interesting enough, SA user K.Herbert alerted readers to this article in the comments of another Herbalife article, which Google was kind enough to translate from Dutch to English for me:

The news is played by great Herbalife. The company is trying to convince you that it uses a legitimate sales model. By all means the world it The message seems to come from investors who share send more than 6%.

In Test-Achats is however surprised response. "It seems to me strongly that there is already a judgment of the Court of Appeal in Brussels over a period of two years," says Ivo Michiels, spokesman Test-Achats. "The case at first instance dragged on for 7 years. We have not heard anything yet anyway. "

"We have contacted our lawyer, and who has not received anything," adds Michiels." But it goes without saying that if there is a judgment, we will study that."

To exit Herbalife, Icahn needs a volume weighted average price of $73 for five running days - or he simply has to wait until February 28th of 2014.

Can you imagine a scenario where Icahn holds his stake in this company that:

  • still doesn't have audited financials, that were expected in September
  • has an ongoing SEC enforcement division investigation since early in the year
  • would present an enormous risk to Icahn's 200% if he took it to an LBO (extremely unlikely)
  • has a pronounced constituency of shorts

It continues to get tougher and tougher for me to think of reasons why Icahn would continue to hold his position in Herbalife, now that it's overvalued and under the caveats of the above arguments. Aside from simply wanting to stick it to Ackman, no other reason presents itself - and even that reason loses steam when you think of the fact that Ackman replaced most of his short with long-dated puts. You can't squeeze out puts, but yes - Ackman is fighting time and they can go worthless.

And so, as one more day goes by without audited financials, we need to think not only of how long Mr. Icahn is going to hold his position - but what the market response is going to be should Mr. Icahn announce that he's sold some - or all of his position?

It certainly is interesting times for Herbalife supporters and bears alike. I remain bearish and short here, but no matter what side of the trade you're on, I wish you good luck and "may the best analyst win".

Source: How Long Will Icahn Hold Herbalife?