Carl Icahn Mulled Selling Herbalife Stake to Ackman
August 26 2016 - 8:20AM
Dow Jones News
Carl Icahn has recently discussed selling his stake in Herbalife
Ltd. to a group including the company's arch-nemesis William
Ackman, another surprising twist in a battle between billionaires
that has riveted Wall Street for years.
Investment bank Jefferies Group LLC has been seeking over the
past month to find buyers for Mr. Icahn's 18% stake, which is worth
roughly $1 billion, people familiar with the matter said. The
status of the talks and which other investors may be involved
wasn't clear and Mr. Icahn may sell nothing in the end.
The fact that he even entertained selling his shares, by far the
biggest single stake in Herbalife—and that Mr. Ackman could be a
buyer—adds more drama to a tug of war over a once-obscure
nutritional-products company that Mr. Ackman says is a pyramid
scheme, an allegation it denies. The latest development is
especially surprising given that just a month ago Mr. Icahn
expressed renewed confidence in Herbalife, which in settling a
closely watched Federal Trade Commission probe announced he was
allowed to boost his stake to just below 35%.
Mr. Ackman kicked off the fight in 2012 with a widely watched
presentation and a $1 billion bet that the stock would collapse.
Mr. Icahn joined the battle a few months later and soon after got
several Herbalife board seats. Since then, the men have screamed at
each other on live television and they and the company have traded
legal accusations amid multiple investigations and a feature-length
documentary that premiered at the Tribeca Film Festival.
Herbalife has fought back just as fiercely against Mr. Ackman.
The Los Angeles company has maintained throughout that it doesn't
break the law and accused Mr. Ackman of market manipulation. The
stock price has gone decidedly in the company's and Mr. Icahn's
favor, rising roughly 70% since he first disclosed his bet on the
shares in February 2013. Its shares closed Thursday at $61.93,
nearly double Mr. Ackman's breakeven price in the low-$30s range.
Herbalife has a market value of about $5.6 billion.
Last month, the company settled with the FTC, paying $200
million and agreeing to make changes to its business. Mr. Icahn and
Mr. Ackman both claimed victory. Mr. Ackman said the business
changes would lead to a collapse of the company.
Mr. Icahn countered that the settlement proves Herbalife isn't a
pyramid scheme and said the company would thrive.
"The cloud over Herbalife is gone," Mr. Icahn said then. It
isn't clear why he may be willing to sell now.
Mr. Icahn has been selling several stocks this year amid his
wariness of the overall market, even ones in which he has expressed
confidence. In April, for instance, Mr. Icahn exited Apple Inc.,
which had been his biggest investment and whose shares he often
predicted would rise dramatically. At the time, he said he
continued to support the company's management and believed it would
flourish, but he had made a large profit.
Mr. Icahn often works with Jefferies on such deals, including
the exit of a block of shares in Hain Celestial Group Inc. in
2013.
That Mr. Ackman would consider buying, however briefly, into a
company he has waged a crusade against is less surprising than it
might seem. He had only signaled willingness to buy a small portion
of the stake, one person said. He has long blamed Mr. Icahn for
boosting the stock, saying it's something he hadn't bargained for
when he plotted the campaign.
"I would love to find a way to get Carl out of the stock," Mr.
Ackman said at CNBC's Delivering Alpha conference in July 2014.
He has promised to take his quest to shut down Herbalife "to the
ends of the earth."
Rumors about Mr. Icahn possibly selling have periodically helped
push the much-rumored shares down, including earlier this week.
Wall Street has often appeared more captivated by the thrill of
watching two giants of investing go toe-to-toe than by the
underlying issue of what qualifies as a pyramid scheme or a
legitimate business.
Herbalife sells products including nutritional shakes and
meal-replacement bars through a network of distributors who can
also sign up new recruits and get paid based on a portion of what
they bring in. The debate over the company turns on whether or not
Herbalife's business model allows legitimate entrepreneurs to sell
its products. In the first quarter, the company reported a profit
of $96 million on sales of $1.12 billion.
Mr. Ackman contends it is all a scheme that allows a group of
individuals to prey on unsuspecting newcomers whose own purchases
create incentive payments up the chain but have little hope of
finding buyers for the goods.
Mr. Ackman has made several multiple-hour presentations that
have gone into excruciating detail on his arguments, which touch on
Herbalife's "nutrition clubs" and its business in China. He billed
one presentation as a "death blow" only to see the stock soar as he
pitched his arguments.
Other big names in investing took the other side of the bet from
Mr. Ackman, a common occurrence in the highly competitive world of
Wall Street.
In early 2013, the fight took on a different proportion. Messrs.
Icahn and Ackman both wound up on the phone with CNBC at the same
time. Mr. Icahn called Mr. Ackman a "crybaby in the schoolyard."
Mr. Ackman retorted that Mr. Icahn was "not an honest man."
The two men ended their feud the following year, when Mr. Ackman
called Mr. Icahn to make peace. They hugged on stage at the CNBC
conference and Mr. Ackman hinted that he would be interested in
buying Mr. Icahn's stake in Herbalife.
"It's blessed to forgive," Mr. Icahn said he had told Mr.
Ackman.
Write to David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
August 26, 2016 08:05 ET (12:05 GMT)
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