Icahn Grabs Stake in Herbalife

NEW YORK (AP) -- A feud between Wall Street titans is flaring up again over Herbalife (NYSE: HLF  ) .

Carl Icahn has taken a 13 percent stake in Herbalife, a supplement company that Pershing Square Capital Management's William Ackman shorted heavily, calling it a massive pyramid scheme.

Icahn's investment, revealed in a filing with the Securities and Exchange Commission late Thursday, comes three weeks after a feud between the two men boiled over on live television, with each phoning in to CNBC and insulting each other.

The stock price of Herbalife was up $4.38, or 11 percent, to $42.65 Friday morning. It jumped more than 20 percent before the opening bell.

Icahn said in the regulatory filing that he plans to have discussions with Herbalife management about business and strategic alternatives to enhance shareholder value, including the possibility of going private.

That would be disastrous for investors that have shorted Herbalife, a tactic in which an investor "borrows" a share from a broker and sells it on the open market, anticipating the stock price will fall. Later, that share can be bought again later at a lower price, locking in a profit for the investor who shorts.

Short sellers could be forced to liquidate their positions to limit their losses, and with the shares rocketing early on Friday, many certainly will be doing just that.

Ackman on Friday remained firm in his beliefs on Herbalife .

"After 18 months of due diligence, we have concluded that it is a certainty that Herbalife is a pyramid scheme," he said. "Our goal was to shine a spotlight on Herbalife. To the extent that Mr. Icahn is helping achieve this objective, we welcome his involvement."

The feud between Icahn and Ackman began a decade ago over a real estate company deal that ended up in court. Icahn was forced to pay $4.5 billion to Ackman's Gotham Partners, and he has never forgotten about it.

Icahn has said publicly that he neither likes nor respects Ackman and didn't like how he had approached his short position in Herbalife. He has previously refused to comment on whether he held a position in Herbalife. Many have speculated that he would take a stake in the company to strike at Ackman.

In an emailed response, a spokeswoman for Herbalife said, "We welcome all parties who see the same value in Herbalife that we do."

Herbalife shares have been extremely volatile over the past few months. Greenlight Capital's David Einhorn, another prominent Wall Street figure, raised concerns about the company's business in May. And shares dropped sharply following a lengthy PowerPoint presentation by Ackman in December, when he declared that Herbalife was a pyramid scheme.

The company has disputed Ackman's statements, saying that he is attacking it solely to strengthen his short position. Executives called a meeting with analysts and investors in January to detail how its business operates and who its customers are. Ackman replied that Herbalife "distorted, mischaracterized, and outright ignored large portions" of his presentation.


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  • Report this Comment On February 18, 2013, at 3:31 PM, Millsteen wrote:

    About 30 years ago I was introduced to Herballife as a way to lose weight with healthy drinks and products. The salespeople of herbal life made the most money by being high up in the pyramid making money off the sales of the lower tier associates. The founder of herbal life, Mark Hughes, started the healthy diet alternative in his 20's after his mother died from abusing prescription diet pills. Mark later died at 44 from alcohol and pill abuse. My wife and I used the product when it was first introduced and then became sales associates, bought a lot of products where it sat on our shelves for years until we moved and threw most of it out. I lost track of Herballife until years later I was astounded to see they were a public traded company. I know there has been controversy around them for years and this company has had nine lives. I find it amusing that Icahn and Ackman are going at each other over this company. My advice for the small investor is to stay away from this fray. Either bet smells fishy and these guys can afford to lose money on this battle of egos. Ackman is the guy who made a huge $300 million bet on the failed Borders and Ichan has had his share of failures and yet the financial community refers to them as genius investors. Right!

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