Ackman Says Herbalife Short Has Grown

Feb 14 2014 | 11:17am ET

A little over a year after first announcing his $1 billion short against Herbalife, Pershing Square Capital Management founder William Ackman said he's poised to make even more from the company's failure than when he first accused it of being a pyramid scheme.

Ackman told the Harbor Investment Conference yesterday that, when he restructured his short against the nutritional supplements company last year, he also increased it. That, combined with Herbalife's recent bond sale—which Ackman said makes it a "levered pyramid scheme"—is good news for Pershing Square, he said.

"We didn't simply transform our position from being short," he said. "We actually now have a much larger position notionally than we had initially. So if it were to disappear tomorrow, we'd make a lot more than had it just blown up the day after I gave my last presentation."

"Although," Ackman acknowledged, "life would be a little easier."

Herbalife has denied Ackman's allegations and won the backing of Ackman nemesis Carl Icahn. The company's shares soared last year, saddling Pershing Square with an estimated $500 million paper loss, but have since cooled off dramatically. That's put Pershing Square "on our way" to breaking even, Ackman said.

"We've certainly lost a lot of money," he told the conference. "It was interesting, as it went up, every dollar it went up, CNBC would report Pershing Square's lost another $20 million or another $100 million or whatever. But as we make money on the way down, they stop doing that reporting."

Ackman's update comes as he has continued to put pressure on Herbalife, most recently with a new website, herbalifepyramidscheme.com. Ackman has been profiling top Herbalife distributors, recently targeting former Herbalife board member Leslie Stanford and "chairman's club" member Doran Andry.

"Only three-hundredths of one percent of Herbalife distributors in the U.S. earn $250,000 per year in payments from Herbalife, while 88% of U.S. distributors earn $0 per year in payments from Herbalife," Ackman told Reuters this week.

In addition to Ackman's efforts, U.S. Sen. Edward Markey (D-Mass.) last month asked the Federal Trade Commission and Securities and Exchange Commission to launch probes into the company.

At yesterday's event in Manhattan, Ackman didn't only talk about Herbalife, touching on several other investments, current and former.

The hedge fund manager lauded Procter & Gamble as a "phenomenal business with an enormous opportunity."

"It's one of the great businesses of the world," he added, noting that several of its brands enjoy "robust little mini-monopolies."

Ackman also touched on Air Products and Chemicals, which he liked enough to pour $2 billion—half from a new single-stock fund—into the company to buy a nearly 10% stake, winning the exit of its CEO. Ackman said if Air Products hires the right successor, its share price could double.

"This is a $200-plus stock over the next three years with new management," Ackman said. "The risk at Air Products is whether or not they are going to choose the right CEO."

Ackman also discussed his last single-stock fund, which invested in retailer Target Corp., which he said is "well-run" but "has lost some of its magic."

"It seems to have lost some of its brand appeal," Ackman, who no longer holds a position in the company, said. "It's become more of a commodity retailer. It's selling food. It seems more like a slightly higher-end Wal-Mart. That's a bit of a risky place to be in the world."

Ackman also touched on mall owner General Growth Properties, a five-year-long investment he exited this week. Ackman said "there's still meaningful upside in general growth" and that it remains "a good investment," but that its returns won't "get to a high enough number to please our investors."


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