Carl Icahn gained ground on William Ackman in their opposing bets on Herbalife Ltd. (HLF:US) after pledging to hold his 13.6 percent stake until the shares reach a level that would leave his rival with losses of about $488 million.
The CHART OF THE DAY shows that Ackman’s return on his $1 billion bet against Herbalife has been cut to 16 percent from 27 percent since company shares began rising Feb. 26. The same advances have lifted Icahn’s return on his $506 million investment in Herbalife to almost 14 percent, while Dan Loeb’s Third Point LLC now has an estimated paper profit of 32 percent on his bullish bet, according to data compiled by Bloomberg.
Ackman announced on Dec. 19 that his Pershing Square Capital Management LP had sold short more than 20 million Herbalife shares after a year of research led him to conclude the company was operating a pyramid scheme. After publicly criticizing Ackman’s bet in late January, Icahn proceeded to buy more than 14 million Herbalife shares at an average cost of $36.11 each, saying the company was poised to benefit from a rising consumer focus on nutrition and avoiding obesity.
Icahn, 77, last week promised not to sell any of his holdings for one year in return for receiving two board seats at Herbalife, unless shares trade at an average of $73 each for five consecutive days, according to a filing with the U.S. Securities and Exchange Commission. That would translate into approximately $488 million in losses for Ackman’s Pershing Square, assuming its short position hadn’t changed.
Icahn revived a decade-old feud with Ackman in January, saying that his rival’s public announcements on the Herbalife short sale risks subjecting New York-based Pershing Square’s hedge fund clients to the “mother” of all short squeezes. A trader who borrows and then sells stock in anticipation of a decline can incur big losses if others start buying the same shares in unison, pushing the price up in a so-called short squeeze.
Ackman and Loeb haven’t disclosed the exact price at which they established their positions. Based on average trading prices during the period they invested, Ackman sold short at about $48.58 a share while Loeb bought his stake for about $31.10 a share.
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