Is Bill Ackman Sweating His Herbalife Short?

Activist investor Carl Icahn delivered a Valentine to Bill Ackman that was worthy of a bloody massacre, but Ackman does not appear to be impressed.Hearts

Late Thursday, a filing with the Securities and Exchange Commission shows Icahn has bought more than 14 million shares of Herbalife (NYSE:HLF), the nutritional supplement marketer that Ackman believes is a pyramid scheme. Through common shares and options, Icahn has a 13 percent stake in the company. After extensive research, he believes Herbalife has a legitimate business model with favorable long-term opportunities for growth. Ackman is short more than 20 million shares.

In response to Icahn’s position, Ackman explains in a statement, “We invest based on a careful analysis of the facts. After 18 months of due diligence, we have concluded that it is a certainty that Herbalife is a pyramid scheme. Our conclusions are unaffected by who is on the other side of the investment. Our goal was to shine a spotlight on Herbalife. To the extent Mr. Icahn is helping achieve this objective, we welcome his involvement.”

Icahn’s disclosure comes just a few weeks after the two battled it out on CNBC over a past business deal. Icahn related Ackman to a little Jewish boy getting beat up in Queens, while Ackman simply said Icahn was not used to anyone standing up to him. Icahn provided some foreshadowing in the interview by claiming, “I will tell you one day, I think Herbalife will be the mother of all short squeezes.”

Interestingly, Icahn accumulated the majority of his position after the interview…

When the CNBC anchor tried to get Icahn to reveal whether he is long Herbalife, Icahn replied, “I’m not going to talk about my Herbalife position because you want to bully me…I don’t give a damn about what you want to know. I want to talk about what I want to talk about…You can say what the hell you want. I’m going to talk about what Ackman just said about me, not about Herbalife. I’ll talk about Herbalife when I goddamn want to.”

It appears that Icahn was not ready to talk about Herbalife, because he still wanted to build his position and show Ackman who’s boss. According to the SEC filing, Icahn started accumulating shares of Herbalife shortly before Christmas. However, he added more than 12 million shares, mostly through options, after the CNBC rant.

Screen Shot 2013-02-15 at 10.35.07 AM

As the chart above shows, a short squeeze is well on its way. Herbalife shares surged more than 20 percent in late Thursday trading and continue to trade higher today. Other companies with similar business models such as Avon Products (NYSE:AVP) and Nu Skin (NYSE:NUS) also climbed higher on the initial news.

Building speculation that the best is yet to come in this saga, the SEC filing states that Icahn intends “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.” Icahn will be speaking to CNBC on Friday to further discuss his position.

Don’t Miss: Are Consumers Feeling Any Better About the Economy?