Herbalife+Carl Icahn

It was just yesterday that I speculated the reason Icahn may not have yet sold his Herbalife Ltd. (NYSE:HLF) shares is because he may not be able to find a bidder.


Today, that is looking like the case. This morning, the Wall Street Journal reported that Carl Icahn has apparently been trying to sell his block of Herbalife shares for the last month. David Benoit at the Wall Street Journal had the scoop, which broke at about 5:30AM EST on Friday morning. Some of the meaningful points of his article were:

  • 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.
  • 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.

Trying to sell for the last month would mean he has basically been trying to sell since the FTC settlement took place.

Just one month and 11 days ago, Icahn wrote the following in his statement about Herbalife’s settlement with the FTC:

I have always believed in Herbalife’s strong fundamentals and am pleased the Board has decided to increase my ownership limit from 25% to 34.99% of the Company’s outstanding shares.

Of course, he also made the questionable statement that:

The FTC settlement announced today, coming after a two-year investigation also concluded that Herbalife is not a pyramid scheme – a conclusion that obviously vindicates our research and conviction.

I debunked and called out what I believe to be Mr. Icahn’s falsehood that the FTC announced Herbalife to not be a pyramid scheme in a July research report. In fact, it appeared to me that the FTC did just the opposite.

Icahn has, over the course of this saga, given Ackman the business for going public with his short to drive the price down. If the Wall Street Journal report is true, it looks like it is Icahn himself who may have potentially been exercising in “interesting” PR tactics to try and move some stock.

It had long been speculated and rumored that the FTC cloud over the company and Icahn’s board representation were preventing him from a sale he likely may have made a year or two earlier.

The main question this morning has been whether or not Ackman would cover by buying some of Icahn’s shares. The article says Ackman would have only had interest in a small amount of shares, and QTR believes this would only be to help get Icahn out of the way. Ackman is likely going to remain net/net short and would only possibly buy some of Icahn’s shares to help him get out of his position and get him out of the way. Make no doubt about it, Ackman is likely going to remain very short the company, especially now.

QTR had heard murmurs and rumors a year or two ago that were (and remain) unconfirmed that Icahn was looking to potentially try and exit his state in a similar fashion. In fact, at the 2014 Pershing Square nutrition club presentation that I attended, someone in the audience asked a question asking if it was possible for Ackman to help take Icahn out of the position, and Ackman’s response was that he didn’t think it was legally possible to do.

I’d bet Ackman is not going anywhere. Ironically, that might also be the case for Carl Icahn now, who now appears to be in a bit of a long squeeze.

If there is no bid for the stock, as it seems the case has been, and this news drives the stock lower, which may possibly happen, Icahn is likely going to have to bite the bullet and either liquidate his shares at discount prices or hold onto his stake in the company and bite the bullet from here.

This report directly contradicts the company statement two days ago to Charlie Gasparino who, in between calling people “asshats” on Twitter and reminding the world he’s 195 lbs with “low body fat”, reported that Icahn is “NOT [capital letters] paring [his] stake despite market rumors”, citing the company:

GSA IDIOTWe never did get the update from Charlie – so Charlie let me be the first to update you. It looks like Icahn has been shopping his shares for the last month and you might have been played by Herbalife’s PR team (again).

I also thought it was odd then and I continue to think it was odd now that a company is commenting on the investment strategy of one of its largest shareholders. The company should not be commenting on this, only Mr. Icahn should be commenting on it.

Carl may have been one of the last hopes this company had to keep market confidence alive. The facts are that the company has admitted themselves that Chinese comps are going to start to get very tough and that we are likely to see a negative effect on the North American business from the FTC settlement terms going forward. Ackman and the FTC are likely now engaged with international regulators to bring the same types of change to Herbalife overseas, and there are a litany of three letter government organizations, including the SEC, that we have yet to hear from.

Mr. Icahn made money in this company, if he can get out. He’s up hundreds of millions of dollars and it was a great trade for him. But going forward, a company that relies on the confidence of not only its distributors, but also its analysts investors, might find that it is losing both.