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Talks of Carl Icahn Getting a Piece of Herbalife, Joining Loeb in Long Position
Posted by: Dianne Tordillo (IP Logged)
Date: January 11, 2013 11:55AM

After fellow activist investor, Daniel Loeb set off the media earlier this week with his declaration to obtain a long position in Herbalife (HLF), a company that Pershing Square’s Bill Ackman just shorted weeks ago, corporate raiding Guru Carl Icahn has been reported yesterday afternoon of joining Loeb in taking a piece of the action.

Herbalife, a nutritional supplement company that uses a multi-level marketing approach, was labeled a pyramid scheme by Ackman days before Christmas, dropping the stock down more than 15 percent. A few weeks have gone by, along with Loeb’s initiation, and the stock is seen slowly recovering. The stock is down only 0.64 percent Friday morning.

HLF Herbalife’s one-month price chart - data by GuruFocus.com

The news about Icahn joining the long-Herbalife team originated from a NY Post report, highlighting the rollercoaster ride that has sent Herbalife into a tug-and-pull battle between hedge fund managers.

On one side, Ackman teams with famous short-seller, Greenlight Capital’s David Einhorn, who has been seen in the past asking similar questions Ackman has raised, regarding how Herbalife quantifies its distributors. When Einhorn appeared in a Herbalife conference call in May wanting to clarify the company’s business model, Herbalife’s stock dropped.

The Wall Street Journal captured the call, showing in real-time how the market reacted to the conversation.

Perhaps Icahn’s sour history with Ackman is what prompted the sudden gang-up over Herbalife, following Loeb’s lead. For seven years, Icahn and Ackman battled in multiple courts over $4.5 million, a figure derived from a deal the two made in 2003.

At the time, Ackman was being investigated by the SEC, and needed to do a deal to bring investors their money back. Particularly, Ackman wanted to sell Hallwood Realty, a company whose stock traded at $60, but whom Ackman believed was worth $140 a share. Cold-calling Icahn, the activist investor bought from Ackman the Hallwood Realty shares for $80 a piece, under the agreement that if Icahn sold the shares and made a profit above 10 percent within the next three years, they would split the earnings.

Ackman placed additional legal provisions to solidify the deal, including covering each other’s legal expenses if ever one runs into legal trouble, and paying back interest should Icahn appear late on his payment.

A year later, Hallwood Realty merged with HRPT Properties Trust (which changed its name to CommonWealth REIT and trades under the symbol CWH) for $137 a share, making Icahn a very attractive sum of money. Due to the fact that Icahn did not sell his shares, he felt the agreement didn’t apply.

Ackman thought different and threatened to sue, eventually winning the case, which really was about egos than the $4.5 million, an amount that’s practically chump change for the Gurus.

The New York Times quoted Icahn commenting on Ackman’s win, “He’s now the young gunfighter who wants to show he beat the older gunfighter with a big reputation. He just likes pounding himself on the chest.”

And so, the grudge that Icahn gripped against Ackman over the years has finally found the slot for revenge. The amount of Herbalife shares Icahn is said to acquire has yet to be revealed.

Currently, some Icahn’s top holdings are CVR Energy Inc. (CVI) which is 23.4 percent of his portfolio, Forest Laboratories Inc. (FRX) which is 9.8 percent of his portfolio, Chesapeake Energy Corp. (CSK) which is 8.4 percent of his portfolio and Federal-Mogul Corp. (FDML) which is 6.3 percent of his portfolio.

Make sure to read more about Icahn in our GuruFocus archives. View more of his latest trades inIcahn’s Stock Picks. Also view his undervalued stocks, top growth companies and high yield stocks.

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Guru Discussed: Carl Icahn: Current Portfolio, Stock Picks
Daniel Loeb: Current Portfolio, Stock Picks
Bill Ackman: Current Portfolio, Stock Picks
Stocks Discussed: HLF, CWH, CVI, FRX, CSK, FDML,
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