In Icahn vs. Ackman, the Only Winner Is You

 | Jan 28, 2013 | 7:41 AM EST  | Comments
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Everywhere I went this weekend, people were buzzing about the mesmerizing television Friday that was Carl Icahn v. Bill Ackman on Scott Wapner's Fast Money: Halftime. People hit me up on the street, at bars and at dinner wanting to know who I thought won.

To me there were no winners any more than there are no winners on most reality television shows. Neither Icahn nor Ackman will be voted off the island. All these two gentlemen really did was rehash the past and call each other dishonest. Icahn punctuated his charges with "crybaby" and "loser" slurs, while Ackman talked about a court win and how graceless Icahn was in going back on his word.

In fact, it only got ugly at one particular juncture. Scott Wapner, who had tremendous poise as a sardonic mediator, actually asked -- not demanded, but asked -- for Icahn to retreat to the matter at hand, the merits of Herbalife (HLF). Icahn demurred at that point, saying it was never his attention to talk about Herbalife, and that Wapner was bullying him.

Viewers were taken aback at Icahn's reluctance to talk about Herbalife, something that would have seemed natural if he actually owned the stock. For some I discussed this with, they presumed Icahn had already sold the stock for a quick profit. Others assumed he was still buying and didn't want to talk about it, and still others said Icahn was so out of it that he didn't even know if he owned it. All three have a degree of plausibility.

Still, something stands out about the debate, if you can call it that, which I truly love. It's the idea that Ackman could come on air, disclose his short position in Herbalife and try to convince others to sell. I think we have come a long way from the days when managers speak only of their long positions, which had been the case as recently about a decade ago. It always rankled me that money managers could recommend stocks and then take advantage of the bump, perhaps even to sell stock. But it was perceived unseemly to do the opposite.

Now we have a short seller who has done great homework, and comes on air with his thesis, with all of it clearly meant to send the stock lower. It affords an honest symmetry with those who regularly use the airwaves to praise a stock with the idea of gaining adherents and sending the price higher.

What was a shame about Friday's debate was that Icahn didn't really want to stand behind Herbalife. The only defense he gave was to suggest Ackman could lose his battle if Herbalife goes higher, and that the "mother" of all squeezes would produces a run on Ackman's bank, so to speak.

That brings us to the most important question about this battle -- the one that makes Herbalife inherently uninvestible: What will it take for either man to be right? What will it take for Herbalife to go to zero, or to go to the theoretical point of infinity?

Ackman, with his now-well-publicized thesis, has not succeeded in knocking down the stock. My presumption is that, without an indictment for fraud -- not just an investigation, but an actual indictment -- Herbalife will not go to zero on its own merits.

The charge of a pyramid scheme by a short seller hasn't triggered a mass exodus from the stock, and the pre-earnings announcement of a good quarter indicates that the business itself hasn't been impacted.

But, as we saw, the longs will need much more to start a short squeeze. In fact, it is odd that we haven't seen one yet. Ackman has shorted 20 million shares, and yet Herbalife has started what seems to be an aggressive share-buyback program, and investor Dan Loeb has purchased roughly 9 million shares out of the 113 million shares most recently seen as outstanding.

My colleague Herb Greenberg, who has produced a fantastic online explication of Herbalife, has implied that Ackman is more knowledgeable than the shorts about the Herbalife fundamentals. But I question whether that matters. Think about all of the technically motivated players; we don't hold them to be foolish buyers, even as they often revel in their lack of knowledge of the fundamentals.

Suffice it to say that, unless a squeeze develops or an indictment transpires, Herbalife's stock is going nowhere, and the only winner is you. You are getting a full airing of a stock -- something that would have been unimaginable just a decade ago.

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