Published On: Sun, Jul 17th, 2016

Ackman vs. Icahn: Bad Year for Wall Street’s Golden Boy

Herbalife settlement with FTC ends battle of the billionaires

Carl Icahn Screen shot - fortune.com-2016 - 05 -10 -carl-icahn-crash-stock 320X Bill Ackman

 

Four years after the Wall Street fight between two billionaire investors over Herbalife, Bill Ackman marks a bad year. Not only Valeant Phrmacutical steep losses of $1 billion to Pershing Square hedge fund, Carl Icahn won the war over Herbalife, the nutritional supplements company.

With $12 billion under management, Achman’s Pershing lost around 20 per cent in the first half of 2016, securities filings show.

Ackman had wagered big on Herbalife’s demise. In 2012 Pershing Square made $1 billion bet that Herbalife’s shares would tumble. Ackman labeled the company a Ponzi scheme, comparing it to Bernie Madoff fund  ad to Enron, the energy group’s bankruptcy in 2001.

Putting his credibility a front, Ackman was arguing his case that Herbalife would collapse.

On Friday, the Federal Trade Commission, ruled the Herbalife is not a pyramid operation as Ackman had claimed but forced the company to pay out $200 million to injured distributors, and said the company will continue to operate.

Herbalife shares jumped 9.9 per cent, generously benefiting Icahn, who holds 25 per cent.

“Baby Buffett, ” Bill Ackman took a large short position, betting Herbalife shares would sink.

Icahn declared victory, saying Ackman had gotten his research on the company wrong.

“A significant part of my investment success is directly tied to our in-depth investment research and understanding of often complex and unique issues facing companies, ” he wrote in a statement.

“Unlike many of those that ‘shorted’ Herbalife, we did not rely on one or two research papers prepared by non-experts, ” he said.

Ackman noted that the Federal Trade Commission (FTC) had ordered changes to the way Herbalife does business, and that eventually those will undermine the company’s business model.

“We expect that once Herbalife’s business restructuring is fully implemented, these fundamental structural changes will cause the pyramid to collapse, ” Pershing said in a statement.

The Pershing short gambled on Herbalife shares falling from $47. But they have traded well above that level since February and finished at $65.25 Friday. For Ackman the short bet has cost the fund $20 million a year.

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