William Ackman, the billionaire hedge fund manager who has said he will go 'to the end of the Earth' to destroy Herbalife, brought four women who he claimed were victims of the nutritional supplements seller to the New York investment conference where he conducted his latest presentation against the company on Friday. He asked the women to stand up during his presentation, which elicited some applause from the crowd, including from David Einhorn, another closely-watched billionaire hedge fund manager who had himself raised questions about Herbalife Herbalife last year. Einhorn clapped for the women as they rose from their seats directly behind him. 'They deserve a round of applause because this is a company that is very aggressive with its critics and a lot of the people who have been harmed by Herbalife are not in the position to defend themselves,' said Ackman from the stage.
It would have been impossible to predict the passions and events that have been sparked by Ackman's massive short promotion against Herbalife since he initially launched it nearly one year ago at a New York press conference, calling the company a pyramid scheme whose shares were headed to 0. The Herbalife saga, centered around a seller of diet shakes, has been the Wall Street drama of the year. Einhorn is no longer betting against the shares of Herbalife, but Ackman's Pershing Square hedge fund's big short against Herbalife's stock has attracted very high-profile opponents. Daniel Loeb, another hedge fund star, called Ackman's initial presentation 'preposterous,' buying and selling shares of Herbalife for a quick and substantial profit. Billionaire Carl Icahn, who originally popularized the activist investment style that Ackman, Loeb and Einhorn now practice, bought a 16% stake in the company and called Ackman a cry baby in a verbal slugfest between the two that took place on CNBC. Legendary billionaire investor George Soros took a big position in Herbalife, which promptly caused Ackman to complain to the Securities & Exchange Commission that Soros Fund Management was engaged in insider trading. There has been some insider trading at Herbalife-committed by the KPMG partner in charge of auditing the company's books, who pleaded guilty in May.
Starting in September, a new player swooped in. William Stiritz had managed to carefully conduct a fantastically successful business career over decades while deliberately not bringing himself much public attention. But at 79 he decided to get knee-deep in the most high-profile investment battle going. He personally took a 6.38% stake in the company, representing maybe a third of his net worth, and now wants to discuss strategy with Herbalife. Back in Los Angeles, at Herbalife's headquarters, the company's intense CEO, Michael Johnson, a triathlete who likes to bike for miles in the Rocky Mountains, has hired as a senior adviser Antonio Villaraigosa, the former mayor of Los Angeles, and got Richard Carmona, the former U.S. surgeon general, to become an Herbalife board member, symbolic moves that appear designed to combat Ackman's claims that Herablife preys on low-income Latinos. For his part, Ackman has gotten support from groups like the League of United Latin American Citizens. In a bizarre way, the Herbalife war has managed to cut across issues of race and income disparity in America. 'If you think of the typical Herbalife distributor and their level of sophistication, to this day I still don't understand the marketing plan, true story,' Ackman, who manages some $12 billion, said at the investment conference on Friday that was put on by the Robin Hood Foundation, which aims to end poverty in New York City.
During his presentation, Ackman pointed to an SEC alert from October that warned individuals to 'beware of investment schemes posing as multi-level marketing programs.' He highlighted what the SEC said were hallmarks of a pyramid scheme, such as complex commission structures, and Ackman pounded the table about the lack of audited retail sales data at Herbalife. Within moments of the end of Ackman's Friday presentation, the mudslinging began. 'It doesn't bother me at all that there are some famous octogenarian, what is interesting here is that all the people who are publicly long Herbalife are 80-year-old billionaires, I am not really sure why that is,' Ackman, 47, said in an interview with Bloomberg Television following his presentation, during which he also questioned how committed Icahn was to his long investment in Herbalife. 'There is no problem with their age, I just think it's an interesting fact.' Moments later Bloomberg Television reported Icahn's response: 'In my opinion many of the things Ackman says about it are the rantings of a sore loser,' said the 77-year-old Icahn.
Shares of Herbalife increased 4% to $71.36 in Friday trading. In his Bloomberg interview, Ackman suggested the financial media give disproportionate attention to the daily gyrations of Herbalife's stock, which has risen by 116% in 2013. There has also been a lot of attention given to the idea that Herbalife could conduct a leveraged share repurchase or even become the subject of a leveraged buyout once the company gets its financials re-audited by its new accountant, PricewaterhouseCoopers. Ackman has already warned PwC that it 'may incur substantial liabilities in the event of the company's failure' if Ackman's allegation that Herabalife is a pyramid scheme is proven correct. Herbalife has not clarified its position on a recapitalization, but the company has said it expects to get is financials re-audited by the end of the year. On Friday, Ackman asserted that it was alarming that it has taken so long for PwC to re-audit Herbalife's books and that the prospects of an LBO were dim. But Ackman added that he would continue to bet against the company even if it went private. An LBO means 'more opportunity for us to be short the company,' Ackman told Bloomberg News. 'This is not a trade for me, we are going to take this, as I say, to the end of the Earth.'
By the time the Herbalife war is over, Ackman might himself be an octogenarian.
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