"I like Carl, we could absolutely team up together, I'd love to find him a way out of Herbalife because I think if he could get out now, he'd have a very nice profit."
- Bill Ackman on CNBC yesterday
What Comes Up, Must Come Down: Carl Must Sell At Some Point
The point is, he's going to have to sell at some point - the newsmaker is going to be when he sells. There aren't still people out there that think there's an LBO or "going private" road left for Herbalife now, is there?
One of my Twitter followers yesterday accused me of adding "nothing new" to the Herbalife (NYSE:HLF) saga. While I'm not sure that's necessarily true, today I wanted to write about something that I've been thinking about, that hasn't been brought up elsewhere, that I think is likely to happen.
I think it's an extremely realistic possibility he sells out soon, and I'm not just saying that because I'm short. In this article, I want to point out some common sense reasons that I think the obvious choice for Carl is to get out of his Herbalife long position.
Herbalife longs/supporters have made it clear; they're not scared of the massive regulatory campaign launched into the company. Nor are they fazed by continually increasing mountains of circumstantial and direct evidence that seems to point to the fact that Herbalife is operating a global pyramid scheme.
If there's one thing that I think longs should be scared "shizen-less" of, as we'd say in German, is the budding friendship that's developing between Ackman and Icahn.
You have to remember, the feud between the two of these titans was the main reason that Icahn got himself into the Herbalife situation - prior to Bill Ackman, Carl Icahn had absolutely zero interest in Herbalife. Ackman, if you recall, went short based on years' worth of research. Icahn went long with a snap decision - just hours after Ackman announced his short - because he didn't like Bill Ackman. If you think Carl Icahn actually thinks that Herbalife is a sound business model for the long term, I've got some real estate in Alaska I'd like to sell you.
There is no doubt that when you stop to actually listen to Bill Ackman on Herbalife (and his other investments), he generally makes pretty good sense. As a new friend, he'd be hard to ignore. All those conversations about pleasantries and the weather, while under the surface bubbles the cold hard fact that one of the two of you is wrong about Herbalife.
If Icahn has the stones and the humility to cut his feud with Ackman, then he has the humility and smarts to get out of Herbalife while the getting is good.
Let me offer you four more common sense reasons why I think Carl Icahn is going to sell his stake in Herbalife relatively soon and then possibly go short.
Carl Has Already Made a Ton of Money
Here's one area where I will concede to longs.
Carl Icahn has made a ton of money in Herbalife thus far. Does that say anything about the underlying fundamentals of the business? No. Does it simply say that people followed his lead into the stock regardless of fundamentals? Maybe.
But, regardless, I'll concede - the man knows how to make hundreds of millions - and Quoth hasn't quite mastered that yet.
Having said that, Carl is going to, at some point, want to take his profits. As days go by, the window for doing so is looking smaller and smaller, and while Icahn's original idea may have been to wait until the $100+ share price level, it may start making sense for him to simply get out while he's ahead nowadays.
As the stock buyback starts to trail off toward the end of this month, the stock price is likely to trail with it. As the bid starts to disappear and the stock starts to tick lower, Mr. Icahn is going to start to bleed profit on paper.
Why not simply get out ahead now; before the regulatory shoe drops and before the buyback ends?
Carl is Way More Likely to Listen to Ackman Now
This should be the scariest thing for longs.
The fact that Icahn and Ackman are capable of having a rational conversation means, to me, that Ackman has it in the back of his head to try and get Icahn out of this stock. Anyone that's heard Ackman speak knows that anything's possible, as well.
ValueWalk reported on yesterday's CNBC interview with Ackman:
Also speaking on CNBC, Ackman addressed Carl Icahn, who has opposed him on Herbalife Ltd. (NYSE:HLF) and gone long on the company. Ackman says that although he and Icahn spent a year or so hating each other, it's time to move on. In fact, he said he would like to help Icahn get out of Herbalife Ltd. (NYSE:HLF) now while there's still a chance for longs to make a profit.
"I like Carl, we could absolutely team up together," Ackman said. "I'd love to find him a way out of Herbalife because I think if he could get out now, he'd have a very nice profit,"
He also said they have a common enemy, which is the movement to shut down investor activism.
Lest we forget, this is the most convenient it could possibly ever be for Icahn to simply say he now understands what he's been missing.
He's been dealt a 16 against a dealer's ten, and the hi-lo count in the single deck shoe is 10+. The table is giving him the option to surrender, while showing him the odds are stacked against his hand.
His friendship with Ackman essentially gives him this out.
The Last Thing Carl Needs is More Regulatory Pressure
I was going to write a whole piece about how the Mickelson/Walters thing could affect Icahn Enterprises (NASDAQ:IEP), but I took off my tin foil hat a couple of paragraphs in and am starting to concede that it doesn't look like much is going to come of the situation. Plus, with Ackman finding a newfound truce with Mr. Icahn, I've decided to lay off him a bit.
Now, if we could only get him out of this pesky Herbalife situation.
With this Walters/Mickelson headline, the last thing that Carl wants right now is more regulatory pressure; and a great way to alleviate regulatory pressure? Sell one of your long positions that's currently being looked at by the FBI, DOJ, SEC, FTC, and two state attorney generals. Talk about waiting to exhale.
If I were Carl's magic eight ball right now, I'd say: all signs point to selling Herbalife.
Carl's Got Other Fish to Fry Right Now
Carl announced yesterday that he had taken a 9.4% stake in Family Dollar (NYSE:FDO) and, from the headlines, it looks like he's going to have some work to do over there. It would appear that he's trying to set the company up either for M&A or for some sort of LBO. Whatever it's going to be, it's Carl's new focus.
From this Forbes piece, it sounds like Uncle Carl is going to have his hands full:
Icahn disclosed a 9.4% stake in Family Dollar Stores after markets closed on Friday. With another activist hedge fund, billionaire Nelson Peltz's Trian Fund Management, the company's third biggest shareholder, investors appear to be anticipating that Family Dollar is in play and could be pushed into being acquired. Trian's co-founder, Edward Garden, is already on the board of Family Dollar Stores.
Family Dollar Stores announced on Monday that it had adopted a poison pill, an antitakeover-measure, after having initially said its board and management team were "open to dialogue with all shareholders." In the Securities & Exchange Commission filing announcing his stake, Icahn had suggested that he wants to talk to the board about strategic alternatives.
Eager to talk about his position via Twitter - we have had heard absolutely zero on Carl about Herbalife since he's made up with Ackman.
Probably just a coincidence, right? But definitely interesting.
Carl Selling Herbalife is a Win/Win For Him
You see, for Carl and Bill, this could become a success story for both of them. They could both turn massive profits and could both look "right" - Ackman for his original thesis, and Icahn for having the stones to get out at the right time.
And isn't that what Wall Street and the American Dream is all about: both rich guys getting richer?
Again, Carl is going to have to sell his Herbalife stake at some point. Is he really planning on waiting around to see what the regulators have to say about the company after his new friend Bill Ackman predicted "[the government] arresting people" as the next step that's coming in the Herbalife saga?
And when Carl does sell, the question becomes:
What happens when the perfect storm of Herbalife's buyback ending (June 30th) and Icahn selling out of the stock happens?
Does anyone have any predictions for stock price then?
I contended after the FTC news that Herbalife should be a $30 stock, no more. I could see the stock heading there on the news of Icahn selling (if he does) and the buyback ending, thereby removing a major bid on Herbalife's stock and pricing it according to the serious risk that lies under the surface here.
When Carl sees Bill Ackman's "light", what will Herbalife longs argue?
Further, if Ackman can turn a profit with regulators stepping in, and Icahn can also make money due to Ackman getting him out of the stock with perfect timing, it would be then be official:
Bill Ackman is Batman.
I remain short Herbalife and continue to contend that the company is a global confidence game that separates people from their money under the guise of offering a business opportunity.
Best of luck to all investors.
Disclosure: The author is short HLF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.