The Breakdown | Explaining Southern California's economy
Business & Economy

Herbalife battle: It's nuclear war between Bill Ackman and Carl Icahn

A worker cleans the logo on the Herbalife sign. The battle of words between investors with stakes in the company has heated up.
A worker cleans the logo on the Herbalife sign. The battle of words between investors with stakes in the company has heated up.

This video I've embedded below is worth watching to get an idea of the kind of men who are  fighting a very public battle over the L.A.-headquartered weight-loss products and supplements maker Herbalife. Hedge fund manager Bill Ackman and legendary investor Carl Icahn do not like each other one little bit — and the acrimony goes way back, to 2003 when the two tangled over a deal with a real estate company that went so bad that they had to settle the particulars in court (Ackman won). 

Ackman contends that Herbalife is a pyramid scheme. He's bet more than $1 billion that the company's stock isn't just going to decline, but go to zero. Zero! Another hedge fund guy, Dan Loeb, has taken the other side of that bet, buying up several hundred million bucks worth of Herbalife stock, on the assumption that the price will rise.

Enter Icahn, who won't confirm that he's joined Loeb's long bet against Ackman's "mother of all shorts." Icahn has, however, in no uncertain terms confirmed that he hates Ackman's guts. He took to Bloomberg TV on Thursday to attack Ackman, and after Ackman went on CNBC Friday to fire back, Icahn called in and the two billionaires went at it for a half an hour while CNBC's Scott Wapner played referee, a nervous CNBC producer kept a vigilant finger on the bleep button, and floor traders at the New York Stock Exchange hooted and cheered every barb and insult.

Business Insider called it the "Greatest Moment in Financial TV History." Good call.

The last thing I can remember that was anything like it was the infamous Andy Kaufman-Jerry Lawler showdown on David Letterman's show back in 1982 — and the principals later revealed that dustup was a farce. That does make you wonder whether Ackman and Icahn really have that much bad blood between them or are perhaps playing a hedge fund game with Herbalife.

For now, barring any revelations, the feud seems authentic. Others have chronicled their war of words on Friday, so I'll just focus on the best parts. For context, Ackman spent about 15 minutes with Wapner addressing Icahn's accusations, then Icahn called in and the gloves came off.

Icahn repeatedly referred to Ackman as "this guy" and then painted a picture of Pershing Capital's leader as an insecure schoolboy who, when his former firm Gotham Partners got into trouble in 2003, came hat in hand to Icahn to do a deal — a deal that Icahn retrospectively called a "goddamn crazy thing." 

Ackman called Icahn a "bully" who takes advantage of "little guys." Ackman claimed that Icahn saw him as "road kill on the hedge fund highway" by way of explaining why Icahn tried to get out of their arrangement 9 years ago.

Ackman's anti-Icahn argument as far as the Herbalife situation goes is that Icahn is a hypocrite: Icahn performed his own version of what Ackman did with his Herbalife presentation years ago, with a different company. So how can Icahn accuse Ackman of overstepping his role as an investor? It's the pot calling the kettle black.

But Ackman also maintains that Herbalife is an illegal pyramid scheme that should be forced out of business. On this front, Icahn says that Ackman is a liar, and that what he really did was conduct a "bear raid" on Herbalife in order to make his 2012 results look better. Icahn called it a "pump and dump" strategy, although in this case the "pump" part was a "deflate" — Ackman borrowed and then sold shares when Herbalife's stock was trading higher, betting that it would fall and that when he had to buy the shares back — "covering his short" — and return them, the stock will be trading much lower. 

Although if course this isn't a typical short. Ackman has said that he wants the stock to go to zero. Not $10. Not $5. Not $1. 


That doesn't mean he isn't interested in making some money along the way. Icahn also trotted out some numers during the exchange, saying that Ackman booked "$600 million" on the bet before 2012 ended. This was the first mention I've heard of where Ackman is at with his position.

Anyway, Icahn then detailed how in previous dealings with Ackman he couldn't decide whether Ackman was the "most sanctimonious or most arrogant" guy he'd ever met. He insisted that Ackman is a risky investor. Then he quoted 19th century British Prime Minister Benjamin Disraeli about being too sure of oneself.

Throughout, both men spent very little time talking about Herbalife — Icahn rather willfully, exclaiming to Wapner when asked that "I'll talk about Herbalife when I goddamn well want to!"

(For what it's worth, Herbalife has attempted to refute Ackman's arguments.)

This kind of thing doesn't happen every day. Ultimately it serves Ackman's purposes if he truly is on a crusade to put Herbalife out of business. Market-watchers have raised questions about Herbalife in the past. But nobody's fought over those questions with anything that resembles this level of vehemence by two investing titans - one of who has hundreds of millions, if not more, to lose.

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.