Tuesday, December 10, 2013

Bill Ackmans Bet Against Herbalife

Depending on whom you ask, Herbalife Ltd. is either a pyramid scheme that preys on the poor or the innovative manufacturer of dietary supplements favored by a former secretary of state. Bill Ackman, a member of the first camp, admitted in an interview with Bloomberg TV to losing $400 million to $500 million since his Pershing Square Capital Management LP hedge fund started short selling Herbalife shares about a year ago. Ackman also said that this wasn't “just a trade” for him -- he promised to keep betting against the company “to the end of the earth,” a phrase reminiscent of Captain Ahab’s vow that he would chase the white whale “round perdition's flames before I give him up.”

According to Ackman, the Herbalife losses represent less than 5 percent of the total capital managed by his hedge fund. That’s significant, but not devastating. And he seems to have made an adjustment by limiting his potential losses. In the same interview in which he committed to bet against the company to the end of the earth, Ackman said that he had recently modified his bet to protect himself from short squeezes with the help of long-dated put options.

If Herbalife ever gets shut by regulators, Ackman would end up making far more than he lost -- and he wouldn’t have to worry about being forced to close out his position in the interim. In that case, he would have nailed both the fundamental analysis and the required trading strategy. If regulators never move against Herbalife, Ackman would continue to lose money, although at a more measured pace and with a limited downside. It's cases like this that show why it’s so hard to beat the markets.

Monday, December 9, 2013

Ackman's Pershing Square LP up 1.4% in November - Wall Street Journal

Hedge-fund manager Bill Ackman's Pershing Square Capital Management LP reported modest gains in its main hedge funds in November, according to an update sent to investors.

Mr. Ackman's flagship $3.9 billion Pershing Square L.P. returned 1.4% and is now up 10% for the year through the end of November. The offshore $5.1 billion Pershing Square International, which runs a similar activist strategy, rose 1.2% and has gained 9.4%...

View the original article here

Sunday, December 8, 2013

Bill Ackman Bails on J.C. Penney and Procter & Gamble - DailyFinance

Bill Ackman, manager of hedge fund Pershing Square Capital Management, has made a name on Wall Street as someone who bets big when he has an investment idea. Sometimes his strategies work, and sometimes they don't. 

We recently got a peek into Ackman's positions through what's called a "13F" filing, a report of holdings for managers of $100 million or more. Big-time fund managers like Ackman have a lot more sway with companies than you and I because of their billion-dollar positions, but some of these picks can give us insight into companies and help direct further research.

The makings of a bad year
The third quarter was particularly unkind to Ackman, particularly for some of his most high-profile bets. Ackman gave up on the future of J.C. Penney and slashed positions in Procter & Gamble and General Growth Properties . Note that each of these companies has underperformed the Dow Jones Industrial Average over the past year, meaning an index fund would have been far better for his investors than a high-fee hedge fund.

Let's look at how those investments played out for Ackman in both the short term and the long term.

Ackman and the fall of J.C. Penney
Former CEO Ron Johnson has taken a lot of the flak for J.C. Penney's troubles over the past year, but it's Ackman who was largely responsible for Johnson becoming CEO in the first place. Ackman pushed for the hiring of the former Target and Apple executive and supported Johnson's turnaround plans from his seat on the board of directors. In a lot of ways, Ackman was even more at fault for J.C. Penney's recent downturn than Johnson.  

We don't know exactly what Ackman sold his stake for, but his 39.1 million-share stake would have lost $396 million from the beginning of the year to the end of the third quarter alone. That's a big loss on a bad bet in retail. At the very least, it's worth questioning why you should buy J.C. Penney now if someone with such a large stake and an insider position at the company simply threw up his hands and gave up.

Getting out of the detergent business -- sort of
Ackman built a $2 billion stake in consumer goods manufacturer Procter & Gamble in 2012 in an effort to push for change. The company had slowed to virtually zero growth under CEO Robert McDonald, and the stock had hit a wall, which isn't surprising for a company of P&G's size. 

Ackman got his way earlier this year when McDonald stepped down and former CEO A.G. Lafley stepped back into his old role. Shares responded with a nice gain this year, but they still haven't kept up with the Dow Jones Industrial Average, and now Ackman is getting out.

However, just because Ackman has sold 76% of his stake in Procter & Gamble doesn't mean he's giving up on the company. He has simply shifted most of his risk into call options, which make money if the stock goes above his strike price but may result in a 100% loss if the stock goes down.

This is an even riskier bet than buying P&G's stock, and it levers Ackman's returns. If the stock goes up, he could have another big winner on his hands. We still need more time to see just how this investment plays out.

Shrinking love for General Growth Properties
The other major sale Ackman made last quarter was 47% of his stake in General Growth Properties. Over the past year, General Growth Properties has gained less than half of what the Dow Jones Industrial Average has, although that doesn't mean it's been a bad investment for Ackman.

This was an investment Ackman made when General Growth Properties was emerging from bankruptcy, and it included warrants, which are essentially long-term call options. Reports have his initial investment at about $60 million in 2008 and 2009, which grew to some $2.3 billion earlier this year. Here's where you see a deal hedge funds can make that simply aren't available to most of us, and now Ackman is cashing out. 

After a battle with major shareholder Brookfield Asset Management over a potential sale to Simon Property Group, Ackman agreed to sell his warrants and some of his shares. Based on the size of the reduction last quarter, he's in the process of getting out altogether -- with a tidy profit at that.

You win some, you lose some
In the high-stakes world of hedge funds, the gains can be massive -- and so can the losses. This year, the bad bets are piling up for Ackman's Pershing Square. Bloomberg reported that through the end of October, Pershing Square was up just 7.9%, compared to a 21% total return for the Dow Jones Industrial Average.

Unless Ackman turns things around in two months, it looks like an index fund would have been much better to investors.

Saturday, December 7, 2013

Bill Ackman bets big on Fannie and Freddie

Fannie Mae and Freddie Mac have been hot stocks this year. They just got hotter after Bill Ackman took a stake. Pershing Square owns more than 115 million common shares of Federal National Mortgage Association (FNMA, Fortune 500) and over 63 million common shares of Federal Home Loan Mortgage (FMCC, Fortune 500) Corp, according to government filings.

The stocks surged on the news and based on where they were trading Friday, his investment in Fannie Mae is worth more than $380 million, while his bet on Freddie Mac is worth about $200 million.

Fannie and Freddie have been overseen by the Federal Housing Finance Agency since their $187 billion bailout in 2008, prompted by massive losses on mortgage securities. They have since returned to profitability, paying substantial dividends to the Treasury Department, and have caught the eye of investors, particularly hedge funds including Bruce Berkowitz's Fairholme Capital.

Both stocks were delisted from the New York Stock Exchange in 2010 and their shares were moved to what's known as the over-the-counter bulletin board, or pink sheets. The two stocks each trade for a little more than $3 apiece. But shares of both companies are up more than 1,000% so far this year, and gained almost 10% Friday on the news of Ackman's stake.

During an interview on CNBC Thursday, Berkowitz, who is also the biggest shareholder of bailed-out insurer AIG (AIG, Fortune 500), said he wants to buy the insurance components of Freddie Mac and Fannie Mae from the government. Berkowitz said "there are no other group of assets that can perform the job necessary for American housing."

"We have the infrastructure. We could have the money. We can make a reasonable return. We don't have to be greedy. We don't need federal support," he added.

In the SEC filings, Ackman said the shares of Fannie Mae and Freddie Mac are undervalued and attractive, and he also cited Fairholme's proposal as a reason for his purchase.


Friday, December 6, 2013

Bill Ackman Calls His Billionaire Rivals Octogenarians

William Ackman, the billionaire hedge fund manager who has said he will go “to the end of the Earth” to destroy Herbalife, brought four women who he claimed were victims of the nutritional supplements seller to the New York investment conference where he conducted his latest presentation against the company on Friday. He asked the women to stand up during his presentation, which elicited some applause from the crowd, including from David Einhorn, another closely-watched billionaire hedge fund manager who had himself raised questions about Herbalife Herbalife last year. Einhorn clapped for the women as they rose from their seats directly behind him. “They deserve a round of applause because this is a company that is very aggressive with its critics and a lot of the people who have been harmed by Herbalife are not in the position to defend themselves,” said Ackman from the stage.

It would have been impossible to predict the passions and events that have been sparked by Ackman’s massive short promotion against Herbalife since he initially launched it nearly one year ago at a New York press conference, calling the company a pyramid scheme whose shares were headed to 0. The Herbalife saga, centered around a seller of diet shakes, has been the Wall Street drama of the year. Einhorn is no longer betting against the shares of Herbalife, but Ackman’s Pershing Square hedge fund’s big short against Herbalife’s stock has attracted very high-profile opponents. Daniel Loeb, another hedge fund star, called Ackman’s initial presentation “preposterous,” buying and selling shares of Herbalife for a quick and substantial profit. Billionaire Carl Icahn, who originally popularized the activist investment style that Ackman, Loeb and Einhorn now practice, bought a 16% stake in the company and called Ackman a cry baby in a verbal slugfest between the two that took place on CNBC. Legendary billionaire investor George Soros took a big position in Herbalife, which promptly caused Ackman to complain to the Securities & Exchange Commission that Soros Fund Management was engaged in insider trading. There has been some insider trading at Herbalife—committed by the KPMG partner in charge of auditing the company’s books, who pleaded guilty in May.

Starting in September, a new player swooped in. William Stiritz had managed to carefully conduct a fantastically successful business career over decades while deliberately not bringing himself much public attention. But at 79 he decided to get knee-deep in the most high-profile investment battle going. He personally took a 6.38% stake in the company, representing maybe a third of his net worth, and now wants to discuss strategy with Herbalife. Back in Los Angeles, at Herbalife’s headquarters, the company’s intense CEO, Michael Johnson, a triathlete who likes to bike for miles in the Rocky Mountains, has hired as a senior adviser Antonio Villaraigosa, the former mayor of Los Angeles, and got Richard Carmona, the former U.S. surgeon general, to become an Herbalife board member, symbolic moves that appear designed to combat Ackman’s claims that Herablife preys on low-income Latinos. For his part, Ackman has gotten support from groups like the League of United Latin American Citizens. In a bizarre way, the Herbalife war has managed to cut across issues of race and income disparity in America. “If you think of the typical Herbalife distributor and their level of sophistication, to this day I still don’t understand the marketing plan, true story,” Ackman, who manages some $12 billion, said at the investment conference on Friday that was put on by the Robin Hood Foundation, which aims to end poverty in New York City.

During his presentation, Ackman pointed to an SEC alert from October that warned individuals to “beware of investment schemes posing as multi-level marketing programs.” He highlighted what the SEC said were hallmarks of a pyramid scheme, such as complex commission structures, and Ackman pounded the table about the lack of audited retail sales data at Herbalife. Within moments of the end of Ackman’s Friday presentation, the mudslinging began. “It doesn’t bother me at all that there are some famous octogenarian, what is interesting here is that all the people who are publicly long Herbalife are 80-year-old billionaires, I am not really sure why that is,” Ackman, 47, said in an interview with Bloomberg Television following his presentation, during which he also questioned how committed Icahn was to his long investment in Herbalife. “There is no problem with their age, I just think it’s an interesting fact.” Moments later Bloomberg Television reported Icahn’s response: “In my opinion many of the things Ackman says about it are the rantings of a sore loser,” said the 77-year-old Icahn.

Shares of Herbalife increased 4% to $71.36 in Friday trading. In his Bloomberg interview, Ackman suggested the financial media give disproportionate attention to the daily gyrations of Herbalife’s stock, which has risen by 116% in 2013. There has also been a lot of attention given to the idea that Herbalife could conduct a leveraged share repurchase or even become the subject of a leveraged buyout once the company gets its financials re-audited by its new accountant, PricewaterhouseCoopers. Ackman has already warned PwC that it “may incur substantial liabilities in the event of the company’s failure” if Ackman’s allegation that Herabalife is a pyramid scheme is proven correct. Herbalife has not clarified its position on a recapitalization, but the company has said it expects to get its financials re-audited by the end of the year. On Friday, Ackman asserted that it was alarming that it has taken so long for PwC to re-audit Herbalife’s books and that the prospects of an LBO were dim. But Ackman added that he would continue to bet against the company even if it went private. An LBO means “more opportunity for us to be short the company,”

Ackman told Bloomberg News. “This is not a trade for me, we are going to take this, as I say, to the end of the Earth.”

Wednesday, December 4, 2013

Bill Stiritz Wants To Tell Herbalife How To Deal With Bill Ackman

William Stiritz, the chief executive of cereals company Post Holdings Post Holdings, has increased his investment in Herbalife Herbalife and is moving toward personally getting involved in the company’s brutal fight against hedge fund billionaire William Ackman.

According to a Securities & Exchange Commission filing that was revealed after markets closed on Tuesday, Stiritz want to discuss with Herbalife’s management “potential strategies for confronting the speculative short position that currently exists in the company’s stock and its attendant negative publicity campaign.”

Stiritz also indicated that he wants to become a more active player in the Wall Street drama of the year by filing a 13D with the SEC. His other SEC filing involving Herbalife was a 13G filing in September, which indicated his initial passive stake in the company.

Tuesday, December 3, 2013

Bill Ackmans Quiet Activist Campaign Over Fannie Mae And Freddie Mac

It has been about 100 hours since William Ackman revealed his Pershing Square hedge fund’s nearly 10% stake in both Fannie Mae and Freddie Mac. But Ackman has not released any slide presentations telling America how the nation’s mortgage market should be run. He hasn’t conducted television interviews or described his investment in detail in a letter to his investors. Ackman didn’t even use any explosive language in Pershing Square’s Securities & Exchange Commission filing that disclosed the investment, which only said that Ackman and his hedge fund “have determined that they may engage in discussions with management, the board, other stockholders of the issuer, representatives of the federal government, and other relevant parties” about the future plans of Fannie Mae and Freddie Mac.

On the surface, it seems like Ackman recognizes that his effort to score big on Fannie Mae and Freddie Mac will need to be handled differently than, say, his vocal short of Herbalife, the diet shake seller that Ackman has called a pyramid scheme. Conducting an activist campaign against the federal government is not like trying to bully a board of directors into selling an asset or repurchase stock. As Isaac Boltansky of Compass Point Research & Trading recently wrote in a note about the money managers circling Fannie and Freddie: “No matter the type of fund – hedge, mutual, or private equity – the bulk of lawmakers will publicly distance themselves from any proposal which could be framed as ‘enriching’ money managers no matter its merits.” Added Boltansky: “Simply put: Wall Street is not viewed as a sympathetic constituency in D.C. and that fact will not change as the 2014 midterm election comes into focus.”

Make no mistake: Ackman and investor Bruce Berkowitz are waging an activist campaign on the federal government over Fannie Mae and Freddie Mac. But Ackman is not going to be able to use the regular activist playbook to make his Fannie Mae and Freddie Mac investment work. The mortgage giants have been operating under conservatorship since the financial crisis, when they received a $187 billion bailout from the federal government. But even as Fannie Mae and Freddie Mac have returned to massive profitability, paid back the taxpayer funds through rich dividends and remained crucial to the mortgage market, the two government-sponsored enterprises have remained political lightning rods.

Dan Loeb On Trumping Bill Ackman In Herbalife: It Wasnt Personal

In a rare interview, hedge fund billionaire Dan Loeb spoke about his controversial Herbalife Herbalife trade, where he seemingly ganged up with Carl Icahn to go against Bill Ackman.  Loeb, who’s recently been the target of a high profile story in Vanity Fair implying the trade, in which Ackman took a beating, was personal, tried to tone it down, noting he “absolutely” doesn’t like it when activism gets nasty.  Yet Loeb gave thinly veiled indications that he was happy at the personal victory, even making light of mocking Ackman by setting his Bloomberg Bloomberg Terminal status as: “New HLF Product: The Herbalife Enema administered by Uncle Carl.”

The founder of Third Point is a man of many words when it comes to his scathing letters to management, as Sotheby’s CEO Bill Ruprecht can attest to, yet he is particularly media shy, like several top hedge fund managers.  Yet on Tuesday, Loeb sat to speak to Andrew Ross Sorkin at the Dealbook conference in New York, where he gave some insight into one of the year’s hottest Wall Street rivalries.

Asked about his involvement in Herbalife, a nutritional supplements company that Pershing Square’s Bill Ackman labeled a ponzi scheme, slapping a price target of $0 on the stock and opening a $1 billion, 20 million-share short position, Loeb chose to be diplomatic.  “Bill did a lot of work [on Herbalife] and I’m sure he believes in his heart of hearts [that he’s right],” he said.

Previously, when asked about Ackman’s JCPenney bet, where the activist brought on Apple Apple executive Ron Johnson in what Sorkin defined as an “unmitigated failure,” Loeb tried to downplay the debacle.  “It was certainly a very messy situation [and] Bill [Ackman] has had a lot of success [elsewhere],” explained Loeb, citing the cases of General Growth and Canadian Railways as examples.  ”You’re being very nice to Bill today,” Sorkin said, as Loeb let out a grin.

But that’s as nice as he chose to be.  Asked by Sorkin about taunting Ackman through his Bloomberg Terminal statuses that joked about the latter’s failed Herbalife trade, Loeb spoke of “silly banter” that “hedge fund managers [engage in] from time to time.”  Sorkin pushed on, “do you like a good fight,” he asked, “how personal was it for you and Bill?”  To which Loeb once again diplomatically answered, “it’s not personal at all.”

Loeb was the target of a recent piece in Vanity Fair that accused him of using “scorched-earth tactics.”  The piece even cited remarks by George Clooney, who blasted the hedge fund manager saying:

I’ve been reading a lot about Daniel Loeb, a hedge fund guy who describes himself as an activist but who knows nothing about our business, and he is looking to take scalps at Sony. […] It makes me crazy. . . . A guy from a hedge fund entity is the single least qualified person to be making these kinds of judgments, and he is dangerous to our industry. . . . What he’s doing is scaring studios and pushing them to make decisions from a place of fear. . . . To have this guy portraying it that Sony management is the bad stepchild and doesn’t know what it is doing and he’s going to fix it? That is like Walmart saying, let me fix your town, putting in their store, strangling all the small shops and getting everyone who worked in them to work for minimum wage with no health insurance.

Sorkin read that portion to Loeb, who claimed to not have read the piece, and asked him if what he had done, and what activists do in general, can sometimes resemble the pump and dump strategy of investing.

“Wow, quite an accusation,” Loeb replied, “first of all, I have a fiduciary duty to earn a rate of return to my investors, not Bill Ackman.”  Loeb saw opportunity, he said, after spending all of Christmas studying the company, even flying from Mexico to meet the CEO during his vacation.  “It was my assessment that the accusation was unfounded,” he said of Ackman’s claims.

Loeb started buying the stock at $28, and had a price target of $55 to $70.  Six or seven weeks after buying, the stock had appreciated dramatically, hitting $44 and signaling that it was time to take profits.  “That for us was a gift, we decided to take the money and run,” he defended himself, “there was no pump and dump.”