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Legendary investor Carl Icahn has made his way into the battle over Herbalife.So it’s time to remember that this isn’t the first time he’s gone head to head with Bill Ackman.
Last time, though, he lost.
This time, who knows? When Ackman presented his dizzying takedown of Herbalife, a nutritional multi-level marketing company, last month, the Street was relatively quiet watching the stock through the holiday season.
Perhaps everyone was waiting for Herbalife to present it’s side of the story today.
But even if they weren’t, the quiet period may very well end now that Icahn’s in the game.
The feud between Ackman and Icahn only ended in 2011 and dates back to 2004. One of the weirdest things about it? It was all over only $4.5 million.
In 2003 Bill Ackman’s first hedge fund, Gotham Partners, had just blown up and he was being investigated by then-Attorney General Eliot Spitzer. The investigation was eventually dropped, but this definitely wasn’t the best time in Ackman’s career.
He needed to do a deal. Specifically, he wanted to sell Hallwood Realty, a company whose stock was trading about $60 a share but Ackman believed it was worth $140. So he called Icahn.
“By reputation, I knew he was a tough guy and a difficult guy,” Mr. Ackman says. “I wanted to make sure I could collect.”He continues: “I insisted the agreement be short. I also insisted it have a mathematical example in it, so that there could be no question about the intent of the agreement.”
That’s not quite the way Mr. Icahn remembers it. He says that he was the one who was worried, and that Mr. Ackman was under investigation and desperate to sell. (Both investigations were later dropped.)
“I checked him out,” Mr. Icahn says. “He was in trouble with the S.E.C.; he had investors leaving him. A few of my friends called me up and said; ‘Don’t deal with this guy.’ “
Regardless, the two made a deal. Icahn bought shares of the company from Ackman for $80 a share with the promise that if he sold the shares and made a profit above 10% within the next three years they would split it.
To make sure everything was on the up and up, Ackman included some legal provisions in his contract with Icahn. First the contract stipulated that if there was any legal trouble, the loser would pay the winner’s legal fees. Second it said that if payment was delayed, Icahn would owe Ackman a lot of interest.
In 2004, Hallwood merged with another company, for $137 a share. That meant Icahn made some good money on the deal, so Ackman called him for Gotham Partners’ cut.
As Mr. Ackman tells it, the older man scoffed: “First off, I didn’t sell,” Mr. Icahn told him. Mr. Icahn argued that a merger did not constitute a sale of shares.
“Well, do you still own the shares?” Mr. Ackman asked.
“No,” Mr. Icahn said. “But I didn’t sell.”
And so it went. Mr. Ackman threatened to sue. Mr. Icahn roared that he would counter sue.
“Go ahead, sue me. You know what, I’m going to sue you!” Mr. Icahn shouted, according to Mr. Ackman, who says Mr. Icahn told him that he took his advice on MBIA and lost $20 million.
So Ackman eventually sued, and while the men barely spoke (their lawyers did all the talking) there was some name calling (from the NYT):
“The guy is a shakedown artist,” Mr. Ackman sneers. “His word is worthless.”
Mr. Icahn says: “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 there was an incident when the two men reportedly got into an argument at a restaurant when Icahn offered to settle the dispute by giving $10 million to the charity of Ackman’s choice. Ackman said the money belonged to Gotham Partners and refused.
Then there was the time investor David Tisch asked Ackman about Icahn. Icahn wanted to invest in one of Tisch’s funds and Ackman told him to think better of taking Icahn’s money.
According to the NYT, though, Tisch and Icahn don’t remember ever hammering out a formal offer for investment.
Meanwhile in Court, Icahn and Ackman’s lawyers went to war for 7 years. Finally in October 2011, Icahn’s final appeal was denied and Ackman was awarded $9 million.
However, to this day it’s well known that Ackman and Icahn dislike each other. Even the New York Times Dining section has mentioned it. In a September 2012 piece about how NYC restaurant staffs accommodate their most loyal patients, this little gem appeared:
At Marea, Michael White’s Italian restaurant on Central Park South, for instance, the hedge fund manager William A. Ackman is a regular and one of many customers who rates an NR, never refuse. What the computer does not say (but the general manager, Rocky Cirino, knows) is that servers can never seat Mr. Ackman next to Carl C. Icahn, another big Wall Street name. The two have sued each other.
Now it looks like Herbalife is the next battlefield for these two. Buckle up.
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