Ackman calls off disastrous $1-bn bet against Herbalife

William Ackman is ending his crusade against Herbalife Ltd, in what amounts to a bruising defeat in one of Wall Street's longest-running, most expensive and acrimonious fights.

 
William Ackman  

The activist investor's Pershing Square Capital has largely exited its $1-billion, five-year bet against the nutritional products company five years after his on-air verbal brawl with Carl Icahn on CBNC, reports said.

Ackman told CNBC on Wednesday in a phone call that he had unwound the position. Herbalife shares jumped 9 per cent to an all time high on Wednesday.

Ackman, one of Wall Street's most outspoken hedge fund managers, said he had quietly unloaded his remaining positions in Herbalife - a bet that at one time had been valued at $1 billion by his Pershing Square Capital Management.

The activist investor had placed the massive bet against the nutritional supplement maker he accused of running a pyramid scheme and called a massive fraud. He expected the shares to fall to zero, enabling him to profit on his short sale of the stock.

Early in his campaign, a number of prominent Wall Street investors lined up to take the opposite side of his bearish trade.

His most notable opponent was Carl Icahn, another billionaire investor, who would become Herbalife's largest shareholder.

But Ackman's bet proved disastrous. Last November, after Herbalife shares had climbed 51 per cent for the year, he announced he had closed out the short position he had in the shares and converted it into a bet using put options.

The Icahn-Ackman fight happened on 25 January 2013, while Ackman was being interviewed by telephone by CNBC. Ackman was responding to attacks by Icahn the previous day over Ackman's claims that Herbalife was "a well-managed pyramid scheme".

Icahn called in to the show, saying "Ackman is a liar" and that he had "one of the worst reputations on Wall Street".

"I've really about had it with this guy," Icahn said. "He's like the crybaby in the schoolyard."

Business Insider labeled it "The Greatest Moment In Financial TV History."

The two made up a year later.

In the annals of Wall Street, investors have lost more on trades. But Ackman's bearish bet on Herbalife was a signature event given how much time, effort and money he devoted to making his case - all in the hopes that the federal authorities would take action against Herbalife.

In fact, the Federal Trade Commission did. But its enforcement action against Herbalife in July 2016 was not the death knell that Ackman had been counting on. The commission's settlement with Herbalife required the company to pay $200 million in consumer relief, hire an outside monitor and make substantial changes to its business practices, but it let the company continue to operate.

From that point on, it was clear that Ackman's wager would never come to fruition. Yet he stubbornly stayed with it - till now.

Since the Herbalife misadventure, Ackman's firm has posted steep losses because of money-losing bets on Herbalife and other stocks, most notably Valeant Pharmaceuticals. His main fund posted losses in each of the past three years.