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Feb 28, 2018

Bill Ackman said to cede Herbalife fight, ending five-year saga

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One of the longest and most colourful battles in Wall Street history is over.

Bill Ackman has almost entirely exited his position in Herbalife Ltd. (HLF.N), ending a short-selling campaign that lasted more than five years, according to a person familiar with the matter. The move follows a steady rise in the shares of a company that he repeatedly called an illegal pyramid scheme and vowed to destroy.

Ackman had already signaled that he was stepping back from his fight against Herbalife, which sells weight-loss shakes and vitamins. The 51-year-old billionaire said in November that his fund, Pershing Square Capital Management, has shifted its short position to put options -- a move that limited the downside risk. He has since effectively sold all of those holdings, said the person, who asked not to be identified because the matter is private.

A representative for Pershing Square declined to comment.

With a short bet, an investor has to cover the position if the stock rises. Options, meanwhile, expire without taking an additional hit. Both kinds of investments could have made money if Herbalife’s shares had declined enough. 

That didn’t happen.

Shares in Herbalife have more than doubled since the day before Ackman disclosed his position on Dec. 12, 2012.

Buyback Plan

The stock rose a further 11 per cent in trading Wednesday in New York, reaching a record US$95.93. The run-up followed the announcement of several strategic initiatives to enhance shareholder value, including potentially buying back up to US$650 million worth of its shares.

The Los Angeles-based company also announced it would change its name to Herbalife Nutrition Inc., potentially giving the business more of a health-conscious halo. Management has repeatedly denied the pyramid-scheme allegations.

Ackman had accused Herbalife of being an illegal operation that relied on an army of outside distributors to recruit members with get-rich-quick schemes. He kicked off the campaign with a US$1 billion bet against the company in 2012 and spent millions to investigate the business. He once delivered an emotional, nearly four-hour anti-Herbalife presentation that backfired -- lifting the shares 25 per cent that day.

But the crusade had its successes. Ackman’s complaints triggered an investigation by the U.S. Federal Trade Commission in 2014, and Herbalife ultimately reached a US$200 million settlement with the agency. Under the agreement, the company had to rein in its business practices -- a move that Ackman said would cripple it. In the end, the reckoning never came.

The short position also put Ackman at odds with another billionaire investor, Carl Icahn, who became the company’s biggest holder. Icahn has defended Herbalife’s multilevel-marketing model and publicly assailed Ackman -- on stages, television, in documentaries and online -- since an initial CNBC phone-in fight between the two billionaires.

CNBC was the first to report Ackman had sold his position in Herbalife.