'Alpha Wolf' Ackman Rules The Hedge Fund World

Jan 6 2015 | 6:46am ET

Off Duty

It’s just after Halloween -- the first cold day of the season. There are still pumpkins on stoops, wispy spiderwebs in shop windows. In jeans and a navy raincoat, off duty, out of the limelight, Ackman is open, relaxed -- not quite down-to-earth, but almost. He makes fun of himself; he gossips (off the record); he points out food stuck in a reporter’s teeth. At one point, Ackman stops midstride. He pats down his pockets. “I think I’ve lost my phone,” he says. There is a hint of panic. Whatever is on that mobile -- texts, e-mails, voice mails -- would surely make weeks’ worth of news.

Retracing his steps to a crowded coffee shop, Ackman begins rooting around under tables and politely asking diners to check their seats. Eventually, he uses another phone to call his. A cabbie answers; it’s in the back seat.

Famous Fights

It’s almost impossible to meet Ackman without prejudging him. There are so many stories. A profile in Vanity Fair described a long bike ride on which Ackman was so determined to pull away from fellow billionaire activist Daniel Loeb that he collapsed. In October, Ackman told a reporter that he and some friends bought a $90 million Manhattan condo because he “thought it would be fun.” That prompted Neil Irwin, senior economics correspondent at the New York Times, to write a column titled “A $90 Million Condo Flip Shows What’s Wrong With Financial Capitalism.” Buzzfeed included the condo quote in a list labeled “The 14 Most Bill Ackman Things Bill Ackman Has Ever Said.”

Ackman’s fights with CEOs and boards are famous. He once threatened the chairman of a takeover target with “a nuclear winter.” In July, in his epic three-hour Herbalife presentation, he called the company “a criminal enterprise” and its CEO, Michael Johnson, “a predator,” and he almost cried.

People who dislike Ackman really dislike him. “I would rather hang out with drug dealers and prostitutes,” says John Hempton, chief investment officer at Bronte Capital in Sydney. Hempton doesn’t know Ackman personally but is invested in Herbalife.

Brilliant Idea

With Allergan, Ackman provoked in a different way. He bought more than 28 million shares in the company knowing he and Valeant were about to try to take it over. Even his critics acknowledged the move was brilliant. (It brought Icahn around; he told CNBC: “I never said he’s not a smart guy. I think the concept of this is good.”) Still, the bid with Valeant raised questions. “Ackman’s conduct seems designed to operate on the edges of legality,” says Harvey Pitt, former chairman of the Securities and Exchange Commission.

Ronny Gal, a senior analyst at Sanford C. Bernstein & Co., attended the presentation at which Ackman described his Allergan plans. He went back to his office and put together a report titled “Allergan: How Can It Be Legal?”

‘Gray Zones’

He wrote: “[O]ne can’t logically argue that the agreement between Valeant and Pershing Square is ‘fair’ to other investors in the context of ‘fair market.’ ... However, fairness is a principle, not a law. Pershing Square ... has carefully designed a vehicle to comply with current law. They may not have clearly violated any laws, but (in our view) have entered some gray zones where a legal challenge is possible.”

In August, Allergan filed a lawsuit alleging insider trading. Valeant, Pershing Square and Ackman all deny they broke any rules. The suit is pending.

Activists most often go after weak, poor-performing companies. Allergan is not that. The company’s stock has risen 10-fold during the past 15 years as Pyott has built huge brands such as Botox, Juvederm and Restasis. To get higher returns out of this already high-performing business, Valeant planned to cut more than 70 percent of Allergan’s research budget.

“When you go after companies, where you try to strip mine them—that is really a perversion of what investing is supposed to be,” says David Maris, an analyst covering Allergan in New York for BMO Capital Markets. After an analyst lunch hosted by Pershing Square, Maris hand-delivered a $100 bill to the Pershing Square offices, refusing to let Ackman buy him a meal. “The only people he cares about are George Washington and Benjamin Franklin,” Maris says. “All the dead presidents.”

‘White Knight’

What’s surprising here is not that Ackman disagrees with the criticism; it’s how much he struggles with it. He sees himself as one of the good guys. “We are the white knight always on behalf of the owners of the business,” Ackman says. Defenders of Allergan, he says, won’t acknowledge that the company’s research budget was bloated; he points out that soon after he and Valeant went public with their plans, Allergan itself announced cuts in early-stage research.

At one point, in response to a question using the term billionaire, he visibly cringes. “It’s a weird word; I don’t like what it conveys,” says Ackman, who, according to the Bloomberg Billionaires Index, is worth $1.6 billion. “Billionaire sounds like it’s someone who’s all about the money. The only thing money has meant to me is independence.”

Raised in Chappaqua, a suburb of New York, Ackman grew up with plenty of money -- his father was a successful real estate broker -- and an ambition to succeed. He bet his father $2,000, everything he’d saved up, that he could get a perfect score on his SAT. He didn’t. He did, however, get two Harvard degrees (undergraduate and business).

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