Herbalife is caught up in a battle between billionaires who have raised the stakes of their own private feud to include the company and its many stakeholders. By all accounts, Bill Ackman and Carl Icahn cannot stand the sight of each other. Instead of taking their fight out to the parking lot, they have decided to have a mega battle in which the livelihoods of many others become part of the debris.
Herbalife is a multi-level marketing company which sells diet shakes and other nutrition related products. The Federal Trade Commission recently announced a probe of the company’s alleged pyramid scheme marketing practices. The FTC investigation is the culmination of activity by Ackman attempting to discredit the company since 2012. Ackman alleges the shake seller preys on lower income African American and Hispanic women by inducing them to become distributors and use their own funds for materials, which he alleges in the main source of income for the company. Ackman has put his company and his reputation on the line in order to bring down Herbalife. His own company, Pershing Square Capital Management, put up over $1 billion for a short position in Herbalife stock. In other words, he placed a financial bet that the stock would decrease in value and he has pulled out all stops to assure his bet is a winner.
Ackman has engaged in several high profile battles in which he brings to light the alleged fraud or incompetence of others. He criticized bond insurer MBIA over its business practices beginning in 2002. Ackman turned out to be prophetic after the financial meltdown of 2008. MBIA could not make good on its bond finance insurance. He has been the subject of criticism himself as his sale of a large stake in Wendy’s International occurred with the stock in tatters shortly thereafter. Whether the business or altruistic motivation comes first in the diet shake company criticism is unclear, but the billionaire has bet his own company’s well being on the outcome of his feud with Icahn.
More clear is the motivation of Carl Icahn. He bought a substantial interest in Herbalife and says he has already made over $500 million, although a recent stock price beating may cause him to restate his investment results. Icahn thinks Ackman is a whiny, sissy boy and wants to take him to the woodshed. Restauranteurs in New York are aware of the Icahn blood feud with Ackman and never seat them in proximity to each other. Icahn confirms over a 17 percent ownership position in the diet shake company. He says the company is currently undervalued and that his investment will become even more profitable once the FTC finishes its probe.
Ackman is an experienced political operative and has used many progressive allies to press his case against the nutrition company. Although he purports to protect the interests of unsuspecting potential distributors, if he is successful in bringing down Herbalife to win his billionaire bet and settle his feud with Mr. Icahn, Ackman potentially causes many other underprivileged women to lose their investment of time and money. These woman have to be unhappy their company became an Ackman investment target.
By William Costolo