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Giant Hedge Fund Managers: Bill Ackman Against Carl Icahn

July 24, 2014 | About:

Giant Hedge Fund Managers: Bill Ackman (Trades, Portfolio) Against Carl Icahn (Trades, Portfolio)

In this article, let´s see the battle between two of the world’s major hedge fund managers Bill Ackman (Trades, Portfolio) and Carl Icahn (Trades, Portfolio).

These two gurus hadn’t spoken in at least a year after Icahn called Ackman, “a crybaby” and a “liar” in a CNBC interview. Icahn is the largest shareholder in Herbalife Ltd. (NYSE:HLF) with a 17.3% stake. He made $234 million on his stake in the company, as a presentation by Ackman failed to convince the market that the company is a "pyramid scheme". The presentation was viewed by more than 10,000 people online, as well as several hundred in person at the AXA Equitable Center in New York. Erik Gordon, a professor at the University of Michigan’s Ross School of Business, wrote that Ackman is tarnishing his reputation by presenting weak evidence after making strong claims.

Instead Herbalife shares rocketed more than 25 percent to $67.77, their biggest single-day gain as we can appreciate in the next chart:


Ackman has argued that Herbalife is a “pyramid scheme”, where a company makes most of its money by recruiting distributors rather than selling products to real customers. He said he estimates that the distributor- owned clubs lose $12,000 each per year, on average. He’s also calculated that unpaid, recruited trainees are bilked out of more than $3,000 they and their friends and family must spend on shakes to qualify to open such a club. He spent about $50 million to investigate Herbalife.

Ackman has disclosed that his hedge fund, Pershing Square Capital Management, has sold short the company's shares. He sold short $1 billion of the firm’s shares before restructuring his investment with options. On Nov. 2013, he admitted on Bloomberg TV that Pershing Square's open short position in Herbalife was "$400 million to $500 million".

Final Comment

Herbalife shot back that Ackman’s claims are “completely false and fabricated.” On the other hand, Ackman reiterated that he would personally pursue the company “to the end of the earth,” while also saying he would not risk his investors’ money indefinitely.

Herbalife’s largest shareholders include Soros Fund Management LLC, Richard Perry (Trades, Portfolio)’s Perry Corp. and William Stiritz, according to data compiled by Bloomberg. Other Hedge fund gurus have also been active in the company in the first quarter of 2014. Gurus like Paul Tudor Jones (Trades, Portfolio), Kyle Bass (Trades, Portfolio) and John Burbank (Trades, Portfolio) have also invested in it.

Disclosure: Omar Venerio holds no position in any stocks mentioned.

About the author:

Capital Markets Professor and passionate about the stock market. We provide independent fundamental research and hedge fund and insider trading focused investigation.

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