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The Great Wall Street Rivalry: Ackman vs. Icahn

Writer's picture: Emil GasparyanEmil Gasparyan

Introduction


In the high-stakes arena of Wall Street, few rivalries have captured the attention and intrigue of financial enthusiasts quite like the ongoing feud between hedge fund titans Bill Ackman and Carl Icahn. These two formidable figures, both renowned for their strategic acumen and bold investment strategies, have engaged in a protracted battle that has spanned decades and encompassed some of the most iconic moments in recent financial history.


Ackman vs Icahn

Parties Involved


As the founder and CEO of Pershing Square Capital Management, Ackman has garnered a reputation for his activist investing approach, while Icahn, the founder of Icahn Enterprises, has established himself as a formidable force in the world of finance with his diversified conglomerate holding company. Their long-standing rivalry, marked by public confrontations and legal disputes, has not only shaped their own careers but has also had a profound impact on the financial landscape at large.


First Feud: Hallwood Realty Partners


The first major feud between Bill Ackman and Carl Icahn traces back to their involvement with Hallwood Realty Partners. At the time, Hallwood Realty was owned by Ackman's investment firm, Gotham Partners. Ackman believed that Hallwood Realty was undervalued and needed an "activist" investor to unlock its true value.


Fearing bankruptcy for his firm, Ackman sold Gotham Partners to Icahn at a premium price of $80 per share, despite believing the actual value was $140 per share. This deal included a clause known as "shmuck insurance," where Ackman would receive 50% of any profit if Icahn sold the shares within three years for a higher price. Ackman created the agreement in 2003 and was very careful when conducting business with Icahn, which led him to create a comprehensive contract stating the details of the agreement.


After Icahn accepted the agreement, Hallwood Reallty Partners hired Morgan Stanley, an Investment bank, to sell the firm and in 2004, Halwood Realty was sold to HRPT Properties trust for $250 Million. With the shmuck insurance clause in the contract, the total amount owed to Ackman was $4.5 Million.


Outcome

Icahn, despite owing Ackman the proceeds of the sale, refused to sent the $4.5 Million. Icahn argued that "The firm did a merger for cash and took away his shares, but no shares were sold" This interaciton between the two began the feud between the two hedge fund managers since Ackman decided to sue Icahn for the money which he refused to give. According to Ackman, Icahn was "Difficult to deal with" and this was true since Icahn appealed the case at every jurisdiction level. After 8 years of legal battles, Ackman won the case, and Icahn was ordered to pay $4.5 million plus 9% interest per year. This initial feud set the stage for the long-standing animosity between the two investors, establishing a pattern of conflict and rivalry that would define their future interactions.


Second Feud: Herbalife


In December 2012, a new chapter in the ongoing feud between hedge fund managers Bill Ackman and Carl Icahn unfolded. The battleground was Herbalife, a global nutrition company that Ackman, the CEO of Pershing Square Capital Management, labeled as a pyramid scheme.


Ackman's stance against Herbalife was not just a casual observation; it was a strategic move. Ackman rarely took short positions in his portfolio, as the risks of short selling are substantial. Short selling involves borrowing a stock, selling it on the market, and hoping to buy it back at a lower price to return it to the lender, pocketing the difference. However, if the stock price rises, the losses can be infinite.


To support his claims, Ackman issued a research report criticizing Herbalife's multi-level marketing business model. This public disclosure of his short position caused Herbalife's share price to drop, setting the stage for a high-profile clash with Icahn, a long-time supporter of Herbalife.

Icahn's response was swift and decisive. He bought a significant stake in Herbalife, causing the company's stock price to strengthen. This move fueled Ackman's belief that Icahn was not genuinely supportive of Herbalife but was rather seeking to retaliate against Ackman for their previous feud over Hallwood Realty Partners.


The conflict escalated in 2014 when Ackman initiated a $50 million public relations campaign against Herbalife. Former Representative Bob Barr and Harvey Pitt, a former chairman of the SEC, questioned Ackman's motives, suggesting that his goal was to manipulate the stock price rather than expose the truth about Herbalife.


Senator Ed Markey also joined the scrutiny, calling for investigations into Herbalife's business practices. These investigations led to a significant drop in Herbalife's stock price. It later came to light that Ackman had financially supported Markey's campaign, raising questions about the motivations behind the investigations.

Despite facing legal challenges and investigations, Herbalife ultimately reached a settlement with the FTC in 2016. Ackman, who had bet heavily against Herbalife, suffered significant financial losses as a result.


The feud between Ackman and Icahn played out publicly, with Icahn criticizing Ackman as a "crybaby" and predicting that Ackman's short position would result in a major loss. Ackman, however, remained steadfast in his position, vowing to hold his short position "to the end of the earth."


In 2018, Ackman eventually exited his bet against Herbalife as the company's stock price continued to rise, marking the end of a chapter in the ongoing saga between Ackman and Icahn.


The Herbalife saga is a testament to the power struggles and high-stakes battles that can unfold in the world of finance. Ackman's crusade against Herbalife not only shaped his own career but also had a lasting impact on the companies and industries involved.


Future Thought


In conclusion, the feud between Bill Ackman and Carl Icahn over Herbalife stands as a prominent example of the intense rivalries and high-stakes conflicts that characterize the world of finance. As Ackman and Icahn clashed over their views on Herbalife, their feud became a public spectacle, drawing attention from regulators, lawmakers, and investors alike. While the Herbalife saga ultimately ended with Ackman exiting his bet against the company, the impact of this feud continues to reverberate in the financial world. As two of the most prominent figures in finance, Ackman and Icahn's rivalry serves as a reminder of the competitive nature of the industry and the lengths to which investors will go to defend their positions.

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