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'The United States would be better off when Bill Ackman is gone' — Behind the investor's epic battle with Herbalife, Icahn

Clash of titans: Icahn vs. Ackman five years after epic showdown
Clash of titans: Icahn vs. Ackman five years after epic showdown

Hedge fund manager Bill Ackman and his team had spent months preparing for the takedown of Herbalife – preparing hundreds of slides for the presentation which was now only days away.

Herbalife had no idea what was coming.

Then CEO Michael Johnson had helped build the business into a fast-growing juggernaut. Its stock price kept going higher and it sure looked like nothing could stand in its way.

(Fair warning, the following excerpt contains some graphic language):

With Hirsch on board, Ackman booked the AXA Center on Seventh Avenue. It was Ackman's go‑to venue and large enough to hold the hundreds of people he hoped would show up. Timing was the only question. When October came and went, Ackman pushed the presentation to the week of Thanksgiving. But when Dinneen still wasn't ready come November, Ackman set a drop‑dead date of December 20, just before many on Wall Street would take off for the holidays.

With the date fast approaching and the presentation looming, Dinneen worked around the clock to prepare the hundreds of slides they'd need for the deck. If they were going to bring Herbalife down, everything had to be perfect, including making sure enough people actually showed up to see it.

Ackman had a plan for that too.

On December 19, the day before the Sohn special event, Ackman called CNBC's hedge‑fund reporter, Kate Kelly, to break the news about the big short. Kelly had a slew of big contacts in the industry and from Ackman's point of view was the perfect person to drop the bomb.

Just before 2 p.m., Kelly busted into CNBC's regularly scheduled programming with the "breaking news."

"I've just learned that Pershing Square hedge‑fund manager Bill Ackman has a major new short position in Herbalife," Kelly said, while producers in the control room threw up a stock chart to watch the reaction on Wall Street. "Ackman considers Herbalife to be one of the single best investment short thesis he's ever seen from what we're hearing," said Kelly. "He has been short Herbalife for about seven or eight months and will unveil more details why at the Sohn Conference tomorrow morning."


The Kelly scoop immediately sent Herbalife plunging, falling 15 percent within seconds. Three thousand miles away, inside Herbalife's Los Angeles headquarters, CEO Michael Johnson saw the slide and went apoplectic.

"Who the fuck does this guy think he is," Johnson screamed to no one in particular, while a spokesperson with the company quickly drafted a statement blasting Ackman. Johnson continued his tirade. He was out for blood and didn't care who knew it. He also felt powerless to stop the stock's slide considering he was in Los Angeles and Ackman was in New York, where the story was just starting to spiral. Johnson wiped his schedule and called the Los Angeles offices of Moelis & Company, an investment bank that Johnson had done business with in the past. The firm's co-president, Navid Mahmoodzadegan, took the call. He knew Johnson well and urged the now frantic CEO to remain calm while the two figured out exactly what they were up against.

Johnson would have none of it, arguing that he wasn't about to let some asshole back in New York ruin his company in a matter of minutes. So Johnson did the unthinkable. He picked up the phone and called into CNBC's Street Signs program and unloaded on Ackman in a tirade reflecting his outrage.

"First of all, this is not about Herbalife's business model; this is about Bill Ackman's business model," Johnson railed into the phone, as Kelly and the program's host, Brian Sullivan, listened and watched the stock react in real‑time. "This is wrong," Johnson said. "This is totally wrong what is taking place. This is blatant market manipulation. We're not a pyramid scheme—that's a bogus accusation. We have millions of customers around the world. We don't pay for recruiting. We've been in business thirty‑two years. We just announced a hundred‑million‑dollar facility in North Carolina employing over five hundred people with the governor of North Carolina this morning. This is a legitimate company. Mr. Ackman's proposition that the United States would be better off when Herbalife is gone . . . The United States would be better off when Bill Ackman is gone."

Just like that, one of the biggest battles Wall Street had ever seen was on. Ackman watched Johnson's explosion live and was taken aback at how angry he appeared, even feeling threatened by the outburst. Johnson was pissed, so much so, as the rage was spilling from his body, that he'd jumbled Herbalife's sales figures in an exchange with the CNBC on‑air talent. Kelly had asked Johnson questions similar to those that Einhorn had asked about Herbalife's long‑controversial sales figures.

Here's the transcript:

Kelly: "Mr. Johnson, questions have been raised by other major investors, including David Einhorn. Are the sales that go on about your products confined to your own distribution network? Is that the case, or is it broader than that?"

Johnson: "We have millions of customers. Our customers are sometimes called distributors; that's the only confusion that we have, and they are distributors because they get a discount on our products."

Kelly: "Can you give us a percentage figure though Mr. Johnson as to what percentage of your sales are outside that distribution network?"

Johnson: "90%."

Kelly: "So the vast majority?"

Johnson: "Absolutely."

The number was not accurate. Johnson had fucked up, and he knew it—not that there was anything he could about it now.

Ackman pounced, claiming Johnson had lied.

"He really sounded like a thug," Ackman remembers. "It was clear to me that it was not the reaction of a normal CEO. He flat‑out lied."

This article has been excerpted from When the Wolves Bite: Two Billionaires, One Company, and an Epic Wall Street Battle by Scott Wapner. Copyright © 2018. Available from PublicAffairs, an imprint of Perseus Books, LLC, a subsidiary of Hachette Book Group, Inc.

WATCH: Clash of the Investment Titans

Clash of the investment titans: The Icahn-Ackman saga
Clash of the investment titans: The Icahn-Ackman saga