“Activist Investors” is the nice term for the 1980s phrase “Corporate Raiders,” made famous by the character Gordon Gekko in the movie Wall Street.
He was painted as this man eager to take over companies for the purposes of dismantling them and making a quick buck. Some Activist Investors do good and make a company more efficient. They raid the company’s ownership and board and turn the company into a profitable venture. But then there are the investors who more resemble Gekko -- they come in to destroy a company for profit. While they make money, the economy suffers.
Right now there is a battle between two of the most well-known Activist Investors over the future of the company Herbalife. Carl Icahn, majority shareholder in Icahn Enterprises, has invested in the company in an effort to build up Herbalife and make it even more profitable. Herbalife is an American company that sells nutritional products through independent distributors. The company is just outside of the Fortune 500 and, according to the company’s CEO Michael Johnson, was valued at about $6.6 billion. Bill Ackman, founder of Pershing Square Capital Management, has taken a $1 billion bet that he can make the company go into bankruptcy.
Ackman has used shady, anti-free market tactics to kill the company that have not worked. His activism included an aggressive lobbying campaign to the Federal Trade Commission to do his dirty work and make the company go belly-up. An ABC news piece from 2014 reported that Ackman’s henchmen paid “a ‘whistleblower’ as much as $3.6 million over 10 years if he could help provide damaging information about the company to the government.” But this is merely the start.
According to a Fortune piece published on Sept. 15, 2016, The Siege of Herbalife:
[Ackman] has hired lobbyists to alert community groups to the alleged dangers of Herbalife and has given those groups money to find victims and connect them to regulators. His agents have set up websites, taken out ads, posted notices, and set up 1-800 numbers. They have tracked down former Herbalife employees and distributors, looking for whistleblowers. They’ve solicited nonprofits, concerned citizens, and politicians—including three congressmen and a U.S. senator—to write the FTC and at least seven state attorneys general, sometimes without the letter writers even realizing that a hedge fund manager was the master puppeteer orchestrating the campaign.
Ackman’s goal was a federal investigation -- one that exonerated Herbalife -- that would result in the end of the company. He failed to get the Federal Trade Commission to kill the company that would be highly profitable for Ackman and his investors. This is highly unethical and serves no purpose to forward the American economy.
Now Ackman is in panic mode. He has spread information that Icahn tried to dump his stock, yet Icahn has publicly stated that Ackman was wrong.
CNBC reported on Aug. 26, 2016:
Carl Icahn said on Friday that he bought another 2.3 million shares of Herbalife and criticized hedge fund manager Bill Ackman for his "Herbalife obsession."
Ackman is on the hook for a bet he announced on Dec. 19, 2012. He is in danger of losing if the company survives. The bottom line is that regulators should use market forces and factually-based information to analyze companies, not the word of a billionaire-dollar investor or his lobbyists. Thankfully, the FTC complied with this advice. Although the Commission dinged Herbalife with a fine, they did not declare the company to be an illegally operated business model. They did not buy into Ackman’s bidding to shut down the company in order to help him make even more easy Activist Investor cash. Let’s hope it stays that way.
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