The twice-monthly short interest data is out, and once again the numbers show the perils of betting against companies that land in activists’ crosshairs. Short-sellers bailed out of several companies whose stock price has surged after being targeted by such investors, the Wall Street Journal said.
Zoetis Inc. bears are short just 4.6 million shares, down by 44% since news that Bill Ackman’s Pershing Square Capital Management LP and Sachem Head Capital Management LP had jointly taken a 10% stake last month, according to data compiled by Nasdaq. Shares of the animal-health company are up about 9% since the Journal reported the investment, the report said.
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At Interpublic Group of Cos. where Elliott Management Corp. is said to be prepping for a proxy fight, short interest sank to its lowest level since May. The advertising holding company’s shares have risen 16% since the Journal reported Elliott’s plans last month, according to the report.
Over the summer, short-sellers flocked to struggling PetSmart Inc. Bearish interest peaked at nearly 18% of the company’s outstanding shares as of June 30. That backfired when Jana Partners LLC disclosed a large stake and shares surged 15%. Six weeks later, PetSmart kicked of a sales process that culminated earlier this month with a buyout led by private-equity firm BC Partners, the report said.
Meanwhile, the Los Angeles Times said the stock of nutritional product company Herbalife plunged more than 50% this year after an upbeat 2013 amid declining profit and numerous investigations by federal and state agencies.
In March, the Federal Trade Commission said it had opened a civil investigation of Herbalife. State attorneys general in New York and Illinois also launched inquiries of the company, as did the FBI. None of the agencies has taken action, but the news battered the company’s stock, the report said.
Herbalife’s trouble can be traced to hedge fund manager Bill Ackman, whose high-profile campaign against the company is entering its third year. In December 2012, Ackman accused Herbalife of operating a pyramid scheme and announced that he had bet more than $1 billion on Wall Street that the value of the company’s stock would fall, the report said.
The criticism initially drove Herbalife’s stock price down, but it rallied in 2013 as regulators failed to act and the company’s profit soared.
Founded in 1980 by charismatic salesman Mark Hughes, Herbalife sells protein shake powder, nutrition bars, vitamins and personal care products through a network of independent sales people in more than 90 countries, the Times said.
Its products are not sold at retail stores and can be purchased only by individual distributors, who profit from each sale plus commissions from sales made by those they recruited into the business.
Ackman continues to press regulators to act. He recently released a video that shows a top Herbalife salesman talking in 2005 about how most people who enter the business fail, according to the report.
In July, Ackman boasted that he would unveil damaging new evidence that Herbalife’s business model is illegal. But his presentation failed to impress investors and Herbalife’s stock gained 25% in a single day, the report said.
Many Herbalife supporters remain unmoved by the recent bad news, including Carl Icahn, the company’s largest shareholder. In 2013, he snatched up 17 million shares — or more than 18% of the company — and has said he has no intention of selling, the Times said.
