Wall Street investors frequently come to Washington requesting help. Sometimes they request money and sometimes they want regulations reduced on their business model. Other times they want more.
In the case of Pershing Square’s Bill Ackman, he came to Washington requesting his friends in Congress to get the Federal Trade Commission to put the nutrition company Herbalife out of business so he could profit on his Wall Street bet that the company’s value would go to zero. Like his many other recent investments, Ackman’s strategy was flawed, because he chose to attack a company that refused to be bullied into bankruptcy.
While Ackman was unsuccessful in using the power of government to put Herbalife out of business, it appears that his other investments have also been unsuccessful. Ackman is a string of losing years and has been forced to pump his own company’s cash back into his hedge fund to keep it afloat. Bloomberg reports “add Bill Ackman to Bill Ackman’s list of losing investments. Earlier this year, Pershing Square Capital Management, Ackman’s hedge fund firm, began buying back shares of the publicly traded version of its investment fund, essentially taking money clients gave him to invest and wagering it on himself. So far, the move looks as if it could be another blunder among hedge funds fumbling for fresh ideas. Since early May, Ackman’s firm has bought more than 2.8 million shares of Pershing Square Holdings LTD, which is listed in London and Amsterdam. The share purchases cost $41.5 million. But those same shares, if they were trading today, would be worth only $38.4 million, or $3.1 million less than what Ackman paid.” This buy back looks to be a loss of over $40 million for Pershing Square because nobody expects the shares to ever come back on the market.
When one looks at Ackman’s irrational 5-year losing war betting on the demise of the healthy shake company Herbalife, one can understand why Ackman continues to make bad bets. The simple answer is that Bill Ackman is stubborn and incapable of admitting when he is wrong. Herbalife has been in the process of growing as a company and increasing value of investors in the company at a time when Ackman irrationally claims that the company’s value will go to zero.
In a September 9, 2015 piece in Fortune, Roger Parloff reported “at about 2 p.m. on Wednesday, Dec. 19, 2012, CNBC’s Kate Kelly broke the news that billionaire Bill Ackman’s hedge fund had taken a massive short position—about $1 billion worth, we know now—in the stock of a nutrition company called Herbalife.” The stock crashed and fell 10% in six seconds, yet that was the last time Ackman’s investment showed any hope. Essentially, Ackman bet that he could destroy the company and that bet proved to be a failure.
Ackman was successful in getting the Federal Trade Commission (FTC) to investigate the company and the result has been a company that, after settling with the FTC, has been booming. Ackman has falsely claimed that company’s nutrition product sales were artificially inflated, yet the company reported that 90 percent of U.S. sales for May of 2017 were customers who use the product, not merely distributors. This number constituted over 3 million in sales and was in excess of the requirements of a Federal Trade Commission (FTC) agreement with Herbalife entered into late last year.
Recent reports are of an economically healthy Herbalife company that has hurt Ackman’s investment. The New York Post reported on October 7, 2017 “Bill Ackman takes a hit from Herbalife short as stock soars.” The Post reported that Herbalife shares were at a three-year high and “the maker of nutritional shakes jumped 11.2 percent, to $75.25, after it revealed its recent offer to repurchase up to $600 million of outstanding shares was under-subscribed.” This is great news for Herbalife and more bad news for Ackman.
It is clear that the case of Herbalife is not an isolated incident. Ackman has a history of botching his investments in other companies and that has really hurt the native investors who have chosen to entrust billions with Ackman’s Pershing Square Capital Management hedge fund. Bloomberg concluded that “this is the third consecutive year that Ackman’s funds, which dropped 13.5 percent and 20.5 percent in 2016 and 2015, respectively, are in the red. Ackman still clearly believes in himself. The market, though, clearly doesn’t.” So true.