A star-studded battle among hedge fund titans over the nutritional supplements company Herbalife became the talk of Wall Street when it erupted. But when the barbs eventually fall silent and the klieg lights dim, how will the Herbalife war end? And what truth will emerge?
The arrival of the hedge fund billionaires — William A. Ackman, Daniel S. Loeb and Carl C. Icahn — spawned a media circus. And at times, some investors acted as if they were the stars of a reality-TV show. Yet blustering and bluffing are what traders do, after all.
In the beginning, the dispute was over how Herbalife sold its products and to whom. In December, Mr. Ackman made a presentation at an investor conference, saying that Herbalife was a pyramid scheme. Herbalife vehemently denied those claims, and put on its own investor day in January to rebut them.
The focus, however, soon turned to the hedge fund celebrities. A day before Herbalife's presentation, Mr. Loeb's hedge fund, Third Point, disclosed that it had acquired 8.24 percent of the company's shares, giving Herbalife a huge show of support.
After Mr. Loeb, Mr. Icahn — who is worth some $15 billion, according to Forbes — entered the fray. Yet the fight first appeared to be about something other than Herbalife last month, when Mr. Icahn and Mr. Ackman duked it out on CNBC over real and imagined insults dating back a decade. At the time, Mr. Icahn did not disclose a position but noted that if someone tried to acquire Herbalife, it would spell trouble for Mr. Ackman because "if that happens, that stock could rush to $100."
It was perhaps no surprise when Mr. Icahn announced later that week that he had acquired an almost 13 percent interest in Herbalife. Mr. Icahn topped that off with an announcement last week that he had cut a deal to put two of his people on the Herbalife board and acquire as much as 25 percent of the company.
As a result, the debate over Herbalife has been reduced to the level of a junior high school feud as it becomes about traders trash-talking each other. Hedge fund billionaires may have huge egos and not like each other? Really? As Gordon Gekko says in the 1987 film "Wall Street," "If you need a friend, get a dog."
To employ another movie reference, what's happening with the hedge fund battle is the reverse of a famous "Godfather" quotation: It's not business, it's personal.