Prof. Steven Davidoff: Herbalife Fight Between Ackman, Icahn Looks Like ‘Stalemate’

Wednesday, 27 Mar 2013 11:55 AM

By Dan Weil

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The fight between heavyweight investors Bill Ackman and Carl Icahn over nutritional-supplement-marketing company Herbalife looks like a draw at this point, says Steven Davidoff, a law school professor at Ohio State University.

Ackman is short the company’s stock, calling Herbalife a pyramid scheme, while Icahn, who owned 13 percent of the company as of Feb. 4, has an agreement to purchase as much as 25 percent of the company.

“Without someone buying the company, it is essentially a stalemate,” Davidoff writes in The New York Times. “The only way out appears to be over time as each quarter unfolds and Herbalife’s model holds up under Mr. Ackman’s scrutiny — or doesn’t.”

Editor's Note:
An $87,500 Tax Loophole Discovered by Cherry Hill Accountant

So where does that leave us?

“Let’s face it, without something to stop the attacks, the company is going to undergo strain as time goes on and the questions and suspicions persist. But this could take years,” he says.

“In other words, take a seat, folks, as this ‘short war’ may take something that Wall Street hates almost as much as it likes a good cat fight: patience.”

The risk to Ackman is a short squeeze. He could lose more than $1 billion if there’s a severe one, Davidoff explains. “But this is not likely to happen. … Herbalife is not even among the 50 most-shorted companies, and about half of Mr. Ackman’s position is traded every day on average, meaning that there is still a lot of stock out there.”

On Icahn’s side, he is taking control of two board seats and apparently promising not to sell his Herbalife stock for a year unless the share prices surpasses $73. It closed at $37.26 Tuesday. Icahn also has pledged that he won’t try to buy the entire company unless someone else goes for it first.

“So how will this end? It’s not likely to end soon,” Davidoff says.

Steve Alosio, a former vice president, writes a column on Seeking Alpha that – surprise, surprise – defends Herbalife. “They work endlessly to build a better business, deliver a quality product and weed out bad distributors,” he writes.

“Though direct selling is not for everyone, it is perhaps the original social network and is a very effective way of engaging with consumers and telling the story,” Alosio adds.

Editor's Note: An $87,500 Tax Loophole Discovered by Cherry Hill Accountant

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