Famed investor Bill Ackman has been in a long-running battle against Herbalife, a maker of health shakes.
Ackman is loudly short the company, and believes the business is scam.
Anyway, Value investor Whitney Tilson, who runs Kase Capital, writes that Bill Ackman is going to put a nail in Herbalife’s coffin tomorrow.
“Bill Ackman will be adding his latest nail to Herbalife’s coffin in a webcast at 10 am on Tuesday (available at herbalifepyramidscheme.com), where he will reveal what he’s found after a nearly two-year probe of Herbalife’s nutrition clubs (of which there are 3,000 in the NY area alone!). If history (and Herbalife’s reaction) are any guide, it should be a doozy. Whether or not you have a position (as I do — it’s one of my largest shorts), this webcast is a must-watch as Ackman’s presentations are always a tour-de-force (rivaled only by David Einhorn’s). To be clear, they’re both not always right, but: a) they’re right a lot more than they’re wrong, as their track records show; and b) if you want to see what incredible in-depth research and analysis look like, look no further,” Tilson wrote in a note posted by ValueWalk.
In December 2012, Ackman, who runs Pershing Square Capital Management, publicly declared that he is betting $US1 billion that Herbalife’s stock will go to $US0. Ackman’s thesis is that the company operates as a “pyramid scheme” that targets lower income individuals, particularly those from the Hispanic population.
Herbalife denied and continues to deny Ackman’s accusations.
Right after Ackman revealed his short, Herbalife shares collapsed. Once other fund managers, most notably Ackman’s long-time rival Carl Icahn, started going long, the stock surged throughout the next year resulting in hundreds of millions in paper losses for Ackman’s Pershing Square Capital. Icahn said that he thinks Ackman will be the victim of the “mother of all short squeezes.”
The two rival hedge fund titans recently made up after more than a year of nasty public insults. Last week, they were on stage together at CNBC’s Delivering Alpha Conference where they hugged each other.
CNBC host Scott Wapner asked the pair of billionaires, “Who is going to win?”
“It’s not about winning. It’s not about winning. I would love to find a way to get Carl out of the stock. 17 million shares at $US32 a share, he can get out a very nice profit. I would love for him to walk away with a profit. That would be a great outcome for Carl, and that would be wonderful for us. So, you know, Carl, maybe we should have a conversation,” Ackman said.
Icahn said earlier at the conference that he had not sold a share of Herbalife.
“I will say one thing, that we bought — I’m proud of it. We bought 17 million shares at an average of 37, and we haven’t sold one share. That’s all I can say. I think we have to drop it there.”
Herbalife’s stock is currently trading in the $US60 range. Icahn could exit his stake with a $US391 million profit. Meanwhile, Ackman still hasn’t broken even on his Herbalife short.
A crucial part of Ackman’s short thesis is that regulators, particularly the Federal Trade Commission, will be persuaded to shut the company down. Back in March, the FTC opened an investigation into the company. A number of state attorneys generals are probing the company too.
Since December 2012, shares of Herbalife are up more than 43%. Year-to-date, though, they’re down more than 23%.
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