Battle of the Billionaires

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In one corner we have the founder of Icahn Enterprises, Carl Icahn, weighing in at $15.7 billion and in the other corner we have the founder of Pershing Square Capital, Bill Ackman, weighing in at $1.65 billion. Icahn and Ackman are amidst a feud on Wall Street, placing big bets on opposite ends of the table. It all started with Ackman calling out Herbalife as using Ponzi scheme tactics and short selling the stock while filing a report to the Federal Trade Commission. For those unfamiliar with Herbalife, they are self-described as a global nutrition and weight management company 2.3 million “independent distributors” selling products. Herbalife defended itself by saying it was guilty of no such thing and had a selling strategy similar to that of Avon and many other enterprises. Ackman stepped up his bets on short selling and it took until July for the FTC to make a decision. Herbalife was handed a $200 million settlement fine, without declaring the company a pyramid scheme.

Interesting enough, after the hearing, Ackman stood by his shorting and said the FTC fine would damage the business’s cash flows in the long run and collapse its top distributors. This is where Carl Icahn, the man who pumped and dumped Netflix and who moved Apple’s market capitalization by billions with a single Tweet, comes in. Believing that the court hearings had in the short-run made HLF a stock of value, he placed large bets and appointed someone he knows to a seat on the board. He thinks the stock will do just fine in the long run and is challenging Ackman. Right now, Herbalife is not trading on fundamentals and the stock is swaying up and down with each side’s moves. When Icahn mentioned taking a position in the company, stock surged 6%, never mind that revenues are down 8% on a year-over-year basis. Icahn now owns a 21% stake in the company, but many don’t know how long this will last. Icahn is known for playing retail investors and the media by making remarks that he never follows through with or by hyping a stock up only to leave the position shortly as seen with Netflix, Xerox, Apple, and some oil companies.

Ackman recently entered another risky position which leaves some people questioning his judgement. Among his latest pickings is Chipotle, which has fallen severely after norovirus outbreaks and fierce competition. Pershing Square Holdings year to date performance for 2016 is at a whopping negative 15.5%. At this same time, NASDAQ has beat some records with more stable oil prices and non-discretionary companies and tech stocks at record highs. Losing $5.4 billion in holdings isn’t easy, but Ackman sure makes it seem so as he’s picked some big losers, namely Valeant Pharmaceuticals and Platform Specialty Products Corporations. Some may not believe it, but this is not the first time he has feuded with Carl Icahn. In 2003 they argued over a Hallwood Realty deal. Icahn promised to share a profit made over 10% of the company, but refused to pay Ackman the $4.5 million owed. The question now is, who’s going to come out of the ring winning this battle of the billionaires?

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