Cramer: Herbalife, Ackman & Icahn - What You Should Know
Everybody is talking about the smackdown on live TV between two well respected billionaire investors. Cramer included.
On CNBC's Fast Money Halftime Report, Bill Ackman, the head of Pershing Square Capital Management and its $12 billion in assets, squared off against Carl Icahn, the fellow activist investor and one of the richest men in America with an estimated fortune of nearly $15 billion.
Although there were several issues in play - "Ostensibly the fight was about Herbalife and the future of the stock price," Cramer explained.
Ackman is short the stock, a bet the stock will go lower; he's been very public in his belief that Herbalife is a pyramid scheme – an allegation the company strongly denies. Read More: Herbalife's President Calls Ackman's Claims a 'Gross Distortion of Reality'
Icahn is thought to be long the stock - or own it - presumably as a bet the stock goes higher.
Cramer said the mudslinging and name calling made the conversation interesting. (Click here to see the interview) But added what matters most for investors is the outlook each man has for Herbalife, "I want to deconstruct the fight to determine how either man can win."
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Bear case (Ackman): Skeptics are betting the stock goes lower - a lot lower. However, "to get the stock to zero Ackman needs the government to intervene on his side and prosecute Herbalife to wipe it out," said Cramer. "Without the government 's help, meaning a Justice Department or state attorney general, this company probably won't go to zero on its own volition. It makes too much money and people keep signing up to be distributors to sell the product." That's not to say it can't go down, it can.
Bull case (presumably Icahn): Buyers see catalysts for gains. "The company could take the money it makes and buy back its own stock," said Cramer. The company could also generate better and better profit reports, putting to rest market fears about the business model. Also, a short squeeze could drive shares higher – as those who borrowed stock and then sold it into the market are required to buy it back and return it.
Both strategies are compelling – and Cramer said either could play out. But he said the most important takeaway for retail investors is -- put money to work someplace else.
"I don't want to get between these two men and you shouldn't either," he said. "Herbalife's too hard to trade or own now because it is all about these egos making it a battleground stock. And if there's one thing Cramer avoids like the plague, it's a battleground stock.
Read More: Cramer's Take on Herbalife
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