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4-Traders Homepage  >  Equities  >  Nyse  >  Herbalife Ltd.    HLF   KYG4412G1010

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Herbalife : Ackman exits years-long Herbalife short bet, turns to options

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11/01/2017 | 04:56pm CET
FILE PHOTO: William 'Bill' Ackman, CEO and Portfolio Manager of Pershing Square Capital Management, speaks during the Sohn Investment Conference in New York City

Activist investor William Ackman, who placed a $1 billion (£754.5 million) bet in 2012 that Herbalife Ltd's (>> Herbalife Ltd.) stock price would tumble to zero, said on Wednesday his firm has capped losses by recently closing out its short position in the nutrition and supplements company.

Activist investor William Ackman, who placed a $1 billion (£754.5 million) bet in 2012 that Herbalife Ltd's (>> Herbalife Ltd.) stock price would tumble to zero, said on Wednesday his firm has capped losses by recently closing out its short position in the nutrition and supplements company.

For years, Ackman has said that the company would eventually crumble under regulatory scrutiny for operating what he has called a pyramid scheme, a claim Herbalife denies. He said on Wednesday he has opened a separate bet that Herbalife shares would fall in the form of put options.

Herbalife has been buying back shares and its stock price has soared some 50 percent this year, piling pressure on Ackman's $10 billion hedge fund as paper losses mounted and the cost to borrow the shares rose.

"We covered the shorts and replaced them with outright put positions," Ackman told Reuters, adding that potential losses on Herbalife will now be limited to 3 percent of the firm's capital. "We can still lose money but the loss is capped."

Ackman did not disclose how much his firm, Pershing Square Capital Management, had lost by buying shares to cover its short position.

Short positions, in which borrowed shares are sold in hopes they can be replaced later at a lower price, have the potential for heavy losses that increase as a stock's price rises. Put options give the holder the option to sell a stock at a set price.

Herbalife's stock price has risen in part by its decision to buy back a big chunk of its shares, a move many in the market interpreted as Herbalife trying to pressure Ackman into giving up on his years-long crusade against the company.

Herbalife stock dipped 0.6 percent to $72.18 on Wednesday.

Pershing Square International, the firm's hedge fund portfolio, nursed small losses for the year through the middle of October after logging double-digit losses in 2015 and 2016.

The fund reported a 1.5 percent loss for the first six months of 2017. Pershing Square said in its interim financial report that Herbalife was the fund's biggest loser for that period with a 4.3 percent decline.

For much of the last five years, since Ackman first unveiled the position in December 2012, Herbalife has been a thorn for Pershing Square as unrealized losses mounted.

While Herbalife has played a major role in Ackman's portfolio in recent years, Ackman quickly turned back to Automatic Data Processing Inc (>> Automatic Data Processing) where he is campaigning for three board seats. He hosted another webinar on ADP on Wednesday, aiming to underscore his claim that the company is inefficient.

(Reporting by Svea Herbst-Bayliss in Boston; Editing by Chizu Nomiyama, Meredith Mazzilli and Jeffrey Benkoe)

Stocks treated in this article : Automatic Data Processing, Herbalife Ltd.
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Financials ($)
Sales 2017 4 435 M
EBIT 2017 598 M
Net income 2017 344 M
Debt 2017 -
Yield 2017 -
P/E ratio 2017 15,93
P/E ratio 2018 12,86
Capi. / Sales 2017 1,30x
Capi. / Sales 2018 1,23x
Capitalization 5 765 M
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Technical analysis trends HERBALIFE LTD.
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Mean consensus OUTPERFORM
Number of Analysts 5
Average target price 83,8 $
Spread / Average Target 27%
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Managers
NameTitle
Richard P. Goudis Chief Executive Officer
Desmond J. Walsh President
Michael O. Johnson Executive Chairman
David Pezzullo Chief Operating Officer & Chief of Staff
John G. DeSimone Chief Financial Officer
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