Icahn-Ackman Herbalife Trade Could Be a Win-Win for the Brawling Billionaires
August 26 2016 - 2:10PM
Dow Jones News
Carl Icahn's exploration of a sale of his Herbalife Ltd. stake
to a group of investors including William Ackman is rich with
irony, but the nutritional-products company's shareholders aren't
amused.
As The Wall Street Journal reported in a front-page storyÂ
Friday, Mr. Icahn has this month had talks with investment bank
Jefferies, which has tried to cobble together the group to buy his
roughly $1 billion stake.
Mr. Ackman, of course, has been vocally bearish on Herbalife,
while Mr. Icahn has taken the opposite position.
Shares of Herbalife, which now faces the prospect of losing the
support of its biggest booster and the holder of several board
seats, were down about 6% to $58.27 in late-morning trading, having
recovered from a steeper decline.
Mr. Ackman, whose short position only pays if the stock falls by
nearly half, went on CNBC Friday morning and confirmed the story,
adding that he was willing to spend $30 million or more to get Mr.
Icahn out of the stock. He would then quickly sell the shares,
which he says Mr. Icahn has been buoying.
Meanwhile, Mr. Icahn has reason to sell, not the least of which
is that he could lock in a profit of as much as $450 million based
on the prices that were discussed, according to people familiar
with the matter. He is also generally wary of broad stock-market
valuations right now.
As a refresher: In December 2012, Mr. Ackman first proclaimed
Herbalife a pyramid scheme. The company denied the claim and
accused him of market manipulation. Months later, Mr. Icahn piled
in and said Herbalife was a sound business. Ever since, there has
been plenty of drama and a bright spotlight shone on a previously
little-known multi-marketing platform with a market value of little
more than $5 billion. The constants have been Messrs. Ackman and
Icahn's vehement disagreements.
Why, then, would they come together?
To start, a deal like the one discussed would, in both their
eyes, likely deliver a profit.
Mr. Icahn's 17 million shares were bought for $629.3 million,
according to a federal securities filing, or an average of about
$37.02 a share. Jefferies has been trying to arrange a deal in the
low-to-mid $60-range, the people said. That could have put Mr.
Icahn in line for a profit of up to $450 million.
No deal has been reached and it is possible Mr. Icahn sells no
stock. He also has the freedom to buy more based on a recent
agreement to lift a ceiling on his stake to just under 35%—a right
he may be more inclined now to exercise. [Mr. Icahn currently owns
about 18% of the company.]
The activist, who has been warning of a stock market correction,
has been shedding even stocks he says he likes, such as Apple
Inc.'s. At Herbalife, after several years of gains and a recent
settlement with regulators that likely removed one impediment to
insiders selling, he has become willing to entertain offers, the
people said. He has privately said he still supports the company,
some of the people said.
But Friday's market reaction underscores the difficulty of
exiting Herbalife.
With such a large block, and in a volatile, rumor-prone stock,
selling down in pieces would likely damage Mr. Icahn's profit as
the shares would likely decline while he sought to exit. [If he
sells into the open market, he would have to quickly file with
securities regulators, thereby tipping other investors of his
intent.] Even taking a discount to exit all at once would likely
have saved Mr. Icahn quite a bit. He was down more than $60 million
Friday, on paper.
Mr. Icahn has used Jefferies in the past to get out of stocks in
which he has a big stake, such as Hain Celestial Group Inc.
Jefferies was willing to take as much as $250 million of Herbalife
stock in a deal, one person said.
Of course, adding Mr. Ackman to the possible buyer list could
pose a risk for any other bidders—given he's loudly tried to take
the stock to zero. Indeed, included in the discussions about Mr.
Ackman taking a small portion was the possibility of him pledging
to refrain from bashing the company for a certain amount of time,
one person said.
Write to David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
August 26, 2016 13:55 ET (17:55 GMT)
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