The size of the board will increase to 11 from 9 to accommodate Icahn’s nominees. Icahn has also been given the option of boosting his stake to 25 percent from the current 13.6 percent. The stock moved up as a result, but the real winner here is Icahn, whose interest in the company placed it in a winning position against arch rival Bill Ackman.
Ackman, manager of the hedge fund Pershing Square Capital Management, has an exceptionally large short position in Herbalife. By some accounts, Pershing Square made a $1 billion bet on the fall in Herbalife Ltd. (NYSE:HLF) shares. Ackman has even gone so far as to have labeled Herbalife a pyramid scheme.
However, Herbalife’s stock has gone up more than 11 percent so far this week, effectively nullifying Ackman’s short position. While Ackman must be busy calculating his fund’s loss, Icahn took the opportunity to rub some salt on the bruised ego. “[Bill Ackman] has given us the opportunity to buy a company at a discount…and for that, I thank him,” said Icahn in an interview.
Herbalife Ltd. (NYSE:HLF) is not exactly a company with exceptional growth attributes, though it remains a profitable entity at what it does. Icahn’s investment follows on the heels of fellow hedge fund investor Daniel Loeb’s decision of cutting his exposure to the company.
Loeb’s fund had an 8.2 percent stake in the company on Jan. 9. However, there is a big difference in the investment approaches as Loeb remains largely content as a passive investor. Icahn, on the other hand, is a difficult-to-please activist investor who, after setting his eyes on a company, pushes for major overhauls to unlock shareholder value. In the process, he seems to have made more enemies than friends.
While Herbalife’s rally has largely played out, Icahn has positions in several other companies that have yet to unfold. Transocean LTD (NYSE:RIG) is one such company in which Icahn has an interest in. Icahn Enterprises reported in January that Icahn and his affiliates had acquired a 1.5 percent stake in the deep water driller and were seeking to expand the stake to more than 3 percent.
Icahn’s intention of buying the stake is not clear, but it is expected to be substantially different from the objectives seen in Herbalife. The company’s shares currently trades at a substantial discount to its April 2010 levels when it used to trade around $85. Transocean was the rig contractor of the ill-fated oil well in the Gulf of Mexico which experienced the massive spill that nearly wiped out all the profits from its balance sheet for two years. Earlier in January, the company agreed to pay $1.4 billion in penalties for its role in the maritime disaster.