Last week, billionaire investor Carl Icahn sat on a stage at New York’s Pierre Hotel and was feeling so good about his bet on Herbalife that he almost sounded magnanimous towards his biggest Wall Street rival, the billionaire hedge fund manager William Ackman. “I like Ackman,” Icahn said. “Anybody that makes me a quarter billion dollars I like.”
During his talk, televised on CNBC, Icahn carefully explained his approach to investing this year in Herbalife, the controversial nutritional supplements seller that Ackman has been vocally shorting in a massive way. Icahn and Ackman, of course, don’t like each other at all, but their big duel over Herbalife has turned into a one-sided affair so far in 2013.
Shares of Herbalife surged higher on Monday, rising by more than 6% to $59.39. The stock is now up 80% in 2013 and has increased to its highest level since David Einhorn, another prominent billionaire hedge fund manager, first questioned Herbalife’s business model on one of the company’s conference calls more than one year ago. There has been no news from the company in recent days as the stock has exploded, rising more than 20% in the last six trading days, suggesting the trading in the stock is perhaps being driven by increasing skepticism about the big short thesis on Herbalife.
During the epic verbal battle between Icahn and Ackman that was televised on CNBC in January, Icahn predicted that Ackman’s Herbalife investment could produce the “mother of all short squeezes.” Shortly after that incident, it became clear that Icahn had taken a big position in Herbalife’s stock. He has since expanded that position, bought 16.5% of the outstanding shares and gotten two representatives on Herbalife’s board. Last week Icahn suggested that the “daughter” of all short squeezes had already begun in Herbalife’s stock.
Semantics aside, the news is very bad for Ackman and investors in his Pershing Square hedge fund. In December, Ackman said he was short more than 20 million shares of Herbalife, betting some $1 billion they would decline in value. Even before the recent price action, the dramatic move this year of Herbalife’s stock in the opposite direction had hurt Ackman’s overall investment returns in 2013. Now those returns will have to overcome the sizzling summer in Herbalife’s stock.