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Billionaire investor Carl Icahn could be planning a leveraged buyout of Herbalife, which would strand hedge funder Bill Ackman in a massive short position.
The Herbalife saga just took another turn. Investor Carl Icahn has finally revealed his position — an eye-popping 13 percent of the company — and it looks as if he's plotting a takeover.
Last year, hedge fund manager Bill Ackman accused the downtown L.A.-based nutritional supplements maker of running a pyramid scheme. He made his case in a massive presentation and revealed a bet of more than $1 billion against Herbalife.
Hedge funder Dan Loeb then revealed that he had taken the other side of Ackman's big short with a long position of about 8 percent. Yet another investor, Robert Chapman of L.A.'s Chapman Capital, announced his own massive long position and outlined why he thought Ackman was going to get caught in the mother of all short squeezes.
He then predicted that Herbalife would repeat its own history, going n private in a leveraged buyout (that's when a company is bought with borrowed money). That happened to Herbalife in 2002.
From the language that appeared in an SEC filing Icahn made in connection with revealing his stake, it sounds as if he may be preparing a raid on Herbalife, vindicating Chapman's hunch:
The Reporting Persons have concluded that the Company has a legitimate business model, with favorable long-term opportunities for growth. The Reporting Persons intend to have discussions with management of the Issuer regarding the business and strategic alternatives to enhance shareholder value, such as a recapitalization or a going-private transaction.
Together, Icahn and Loeb control 21 percent of Herbalife's stock, setting the stage for a takeover that could obliterate Ackman's position. Ackman's stated objective is to drive Herbalife's share price to zero. His thesis, as many observers have pointed out, relies on the Federal Trade Commission investigating Herbalife and declaring it a pyramid scheme.
It's unclear at this point whether the FTC is examining the company. But if it doesn't, Ackman is going to have to figure out another way to put Herbalife out of business.
Icahn has a long track record as a corporate raider. He also doesn't appear to like Bill Ackman very much. And now an L.A. company with a $4 billion market capitalization is at the center of their Wall Street rivalry.