This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Bill Ackman’s 2014 Gains May Give Time to Herbalife Short

NEW YORK (TheStreet) -- Bill Ackman said on Tuesday many nutrition club trainees weren't willing to speak out against Herbalife (HLF - Get Report) because they were looking to recover thousands of dollars sunk in the company, even though they were lured into what he describes as a sophisticated pyramid scheme.

In six months, the hedge funder may find himself in a similar position, unwilling to exit his bet against Herbalife in hope of an eventual payoff.

On Tuesday, Ackman reiterated that when his hedge fund's put options in Herbalife come up against a Jan. 17, 2015 expiry, he will do what is in the best interest of the firm's limited partners, deciding to extend or close those contracts. Those puts are trading at a paper loss, especially after Herbalife shares rose over 25% in the wake of Ackman's Tuesday presentation. Still, Ackman remains one of the best-positioned people on Wall Street to make the case against Herbalife.

The hedge fund, Pershing Square, is minting money in 2014, with gains of about 25% through the first half of 2014 on a surge in the firm's two biggest positions, Allergan (AGN) and Canadian Pacific Railways (CP). Other large Pershing Square bets such as Air Products (APD), Burger King (BKW), Platform Specialty Products (PAH), Fannie Mae (FNMA) and Freddie Mac (FMCC) have also outperformed market benchmarks, pushing total assets at the firm to $14.7 billion, according to media reports.

Those gains may give Pershing flexibility to take more time on Herbalife. Were signs of progress to emerge, Pershing and Ackman could treat Herbalife-related expenses and paper losses simply as a sunk cost. Already, Pershing's investigation has cost $50 million and Ackman admitted on Tuesday that he's struggled to untangle what he believes is wrong with Herbalife.

It is unlikely any other investor on Wall Street could justify that expense to research a single trade or deal and it is also unlikely any investor fund would be allowed to stake a $1 billion short without causing its limited partners to run for the hills. But LPs in Pershing Square are well aware that they've invested in one of Wall Street's boldest and most controversial managers.

As Ackman presses Herbalife, he is simultaneously working to negotiate what may be a revolutionary deal on Wall Street in the proposed merger of Allergan and Valeant Pharmaceuticals. So much so, Ackman briefly confused Herbalife CEO Michael Johnson with Valeant CEO Michael Pearson on Tuesday. 

Ackman also wants to be a dealmaker in the possible privatization of the U.S. housing market. 

Furthermore, the hedge fund has played an activist role with Canadian Pacific and Air Products, and it has been a linchpin investor in Platform Specialty Products and Burger King, two publicly traded special-purpose acquisition corporations.  

Herbalife, seen within the context of Pershing's portfolio, may simply represent another daring bet by Ackman in the eyes of LPs, something that may be acceptable given the continued underperformance of many alternative asset classes like hedge funds.

Not all bets go as smoothly as Canadian Pacific or Air Products, Pershing LPs surely know by now.

Ackman Takes on Wall Street

Aside from Ackman's newest allegations against Herbalife, which hinge on Pershing's belief that many of Herbalife's apparent nutrition club customers are actually part of the pyramid scheme-like recruitment chain, much of the hedge funder's presentation on Tuesday was dedicated to an epic narrative against the way Wall Street operates.

By the time Ackman finished his three-hour presentation, he was near tears and had criticized the Securities and Exchange Commission, investment bank Moelis & Co., auditor PricewaterhouseCoopers, law firm Boies, Schiller, hedge fund investors such as Carl Icahn, Daniel Loeb and Robert Chapman, public relations giant Joele Frank, sell-side research analysts and even the reporting of the New York Times.

It was a performance that, depending on the ultimate fate of Herbalife, may be seen as courageous or one of the most paranoid narratives ever publicly provided by a Wall Street power player.

Ackman's sharp criticism of Ken Moelis, the founder of investment bank Moelis & Co. was the highlight.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
HLF $57.95 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs