Activist Takes on Ackman Over Herbalife

Tiffany Rose | WireImage | Getty Images

There's nothing better than one activist taking on another, and that's just what Robert Chapman of Chapman Capital is doing to Pershing Square's Bill Ackman over Herbalife.

Ackman recently sparked a nerve among investors when he gave a three-hour presentation on why he is short multi-level marketer Herbalife—and why he believes it's a pyramid scheme. He said it was his best investment idea ever. (Read More: Ackman Defends Calling Herbalife a 'Pyramid Scheme'.)

Chapman, who has taken a low profile in recent years, is best known for perfecting the practice of filing 13-Ds on companies with harsh and colorful letters to management.

In a letter to his investors regarding Herbalife, Chapman said he has put 35 percent of his portfolio in Herbalife. (Read More: Herbalife Disputes Ackman's Claim of 'Pyramid Scheme'.)

Chapman, who was an activist on Herbalife in 2000, told me he started buying the shares in the mid-$30s and continued buying as they sank to the mid-$20s, before rebounding. Now, he said, Herbalife is his biggest position ever. His next closest is British Petroleum, which became around 20 percent of his portfolio after the 2010 spill in the Gulf of Mexico.

(Read More: Herbalife Under Fire: Clubs, Hopes and Losses .)

Why take such a big bet?

Chapman wrote in his letter: "Despite beguiling and specious reasoning, Ackman will fail to influence/cause a material regulator response or a HLF distributor exodus. Consequently, he will suffer a merciless short squeeze, catalyzed and augmented by a fast and furious combination of HLF share count shrinkage (buyback) and excellent operating performance (beat and raise dynamic.)"

Ackman couldn't be reached, but this much is clear: This is one of the best battles ever.

(Read More: Selling the American Dream: Investigations Inc.)

—By CNBC's Herb Greenberg; Follow him on Twitter:@herbgreenberg and Google

Subscribe to Herb at

Questions? Comments? Write to