As Ackman Exits Herbalife (HLF), A Chapter Closes In Hedge Fund HistoryMark Melin
When Pershing Square’s Bill Ackman told CNBC’s Scott Wapner this morning that he was abandoning his short Herbalife position, it was more than a quick news cycle event that sent Herbalife stock soaring close to 10% in early afternoon trading. What it represented was an end to an activist hedge fund campaign that is likely to down in the history books for its audacious nature.
Activist investors have always been an aggressive lot in an industry of type A personalities. But Ackman’s nearly $1 billion short bet against the Los Angeles-based nutritional supplement firm could go down as the most public and bruising battle.
While many activists engage in public disputes, it is the behind the scenes approaches, which sometimes amount to sending a dead fish to the besieged corporate chieftain, which had traditionally been most useful.
Ackman took the practice of public pressure to a new level. More than just announcing a short position and explaining why the stock went down, Ackman and his team of media mavens dug up dirt like a private eye and then dished it hot and juicy to a media watching the fight.
Ackman’s primary charge was the company had transformed into a multi-level marketing company where the “mark” was the initial investor into the system and the product being sold was not nutritional in basis but rather a dream of riches.
Herbalife distributors, many of them uneducated immigrants, would pay thousands of dollars to join the system only to discover the money wasn’t made selling a product but instead recruiting other members who similarly paid a steep price of admission.
Many of these immigrants came to a Chicago church rally covered by ValueWalk. They told stories of putting their life savings into the Herbalife dream, only to be saddled with expensive products that they could not sell.
The church rally, itself, was endemic of how Ackman and his media team operated.
ValueWalk had been taken behind the scenes as a media control room had been established upstairs in the rafters of the building. A camera crew was capturing the emotional event as Ackman delivered a sermon-like message. Outside, protesters, who were accused of being paid, had been bussed in, all wearing the same shirts that gave a defiant message as they chanted outside.
The event was included in the documentary movie “Betting on Zero” that, Ackman hoped, would influence regulators to shut down a business enterprise that had made its shareholders wealthy.
Never before in hedge fund history had an activist campaign featured such a daring media outreach, capped off by the movie.
But behind the scenes, a regulatory whisper of concern might have been raised. One such issue could have been regarding the message success sent. If Ackman were able to deliver on his stated mission of bringing down a profitable Fortune 500 corporation, then would this encourage other activists to follow suit with such aggressive behavior? Could a situation occur where an activist targeted an “honest” corporation that they had been mistaken about? Did overly aggressive activists lead to a negative rather than a positive impact on society?
These questions won’t have to be answered as Ackman has thrown in the towel and stated he was changing strategies. No longer will he be the swashbuckling fund manager fighting corporate maleficence with his voting shares being waved in public. Ackman announced a few months ago that he wants to focus on finding value in stocks and then buying them, hoping to beat broad market benchmarks.
The move comes as Ackman is reported building a long-only position in United Technologies, focusing on the positive rather than the negative.
Herbalife did not respond to a request for comment.
Pershing Square Capital declined to comment on the matter.