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Ackman Limits Herbalife Exposure as Stock Surges 48% This Year

  • Hedge fund shifts bet against company to put options
  • Herbalife short has been a money-loser for almost five years

Bill Ackman says he’s still confident about betting against Herbalife Ltd.’s stock, but he’s making sure he won’t lose more money if the shares keep going up.

Pershing Square Capital Management, Ackman’s hedge fund, has shifted its Herbalife investment from shorting the stock to buying put options, he said in an interview on Bloomberg Television. That reduces the exposure if the shares continue to rise -- something they’ve been doing for most of the past five years.

“Less downside, more upside,” Ackman said. The bet against Herbalife now accounts for just 3 percent of the firm’s capital, he said.

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Ackman comments on Pershing Square’s shift in its Herbalife investment.

(Source: Bloomberg)

The move brings a new wrinkle to a saga that began in late 2012, when Ackman announced a $1 billion bet against the company and called it an illegal pyramid scheme. His campaign against Herbalife has included spending millions to investigate the business, which prompted a federal investigation. Ackman also was featured in a documentary film.

Herbalife, which sells nutritional supplements and weight-loss shakes through independent distributors, has repeatedly denied the allegations. Still, the company agreed to revamp its operations last year when it settled with Federal Trade Commission for $200 million.

With a short bet, an investor has to cover the position if the stock rises. Options expire without taking an additional hit. Both kinds of investments can make money if Herbalife’s shares decline enough, but that hasn’t happened yet. Through Aug. 15, Herbalife was Pershing’s worst-performing investment this year, according to company documents, with a gross portfolio return of minus 2.9 percent.

Stock Gain

The surge in Herbalife’s stock this year has only added to the losses. It has gained about 48 percent in 2017 to $71.42.

The shift in Pershing’s investment is good for Herbalife because it probably means Ackman will turn his attention elsewhere, according to Tim Ramey, an analyst for Pivotal Research Group, who has remained bullish on the company throughout Ackman’s crusade against it.

“I suspect this will be the last we hear out of them on Herbalife,” said Ramey, who has a 12-month price estimate on the stock of $120.

— With assistance by Vonnie Quinn