When the Wolves Bite

by Scott Wapner

  Icahn breathlessly tore into Ackman as traders on the NYSE floor, watching from their posts, ooh’ed and aah’ed with each flying insult.

  Trading virtually stopped.

  I tried to ask Icahn whether he had taken a long position on Herbalife, but he refused to answer.

  “I’m going to talk about what Ackman just said about me, not about Herbalife,” he said. “And I’ll just talk about Herbalife when I goddamn want to, not when you ask me.”

  “OK,” I replied. But it hardly mattered that I had spoken. Icahn was on a roll. He went on, calling Ackman a liar and asserting that “he’s got one of the worst reputations on Wall Street.”

  “I’m going to tell you this Herbalife is the classic example of what he does,” Icahn said of Ackman. “He was down 2 percent, 3 percent. He probably woke up in the morning and said let’s see what company we can destroy and put out a bear raid on it. It has happened from the late eighties till now and go do a bear raid, kill the stock. And now we can show our investors we made more money. Ackman has done that, if you read the articles about him, he’s done it all his life. And he’s basically lying. And I will tell you something. As far as I’m concerned, he wanted to have dinner once with me. I had dinner with him, and I got to tell you, I laughed. I couldn’t figure out if he was the most sanctimonious guy I ever met in my life or the most arrogant. And that’s Ackman, and that’s the last time I met with the guy. I don’t want to meet him—oh, yeah. And when it comes to friends, he called me and said, hey, we were friends, we could make a lot of money investing together. And I knew that even if I was a friend I would never invest with this guy. Because I tell you, the guy takes inordinate risks.”

  Icahn continued, “He goes short 20 percent of a company. Goes out there, and I will tell you this could be the mother of all short squeezes. I’m going to tell you this. That one day if somebody tenders for this company and wants all their stock back, what’s Ackman going to do? History repeats itself. He’ll be back where he was in 2003 with all the guys redeeming and where is he going to get the money in the stock for that? You know, as far as I’m concerned the guy is a major loser.”

  Ackman soon denied the various charges. “I think that Carl either has a very, very bad memory or he has trouble with the truth. We have a very—because we didn’t make a verbal agreement on Hallwood, we made a written one. He’s got very good lawyers as he says—just read the agreement. The agreement we put on the web. It’s a ten-page agreement. Carl can say what he wants today about what he thought he said back then. But this was much more important to me than it was to Carl. Obviously, we read the agreement. Carl is a big boy. He signed the agreement, and then we had several courts conclude that we were right, and he held us up as long as he could. The big issue about Carl Icahn is he is not used to someone standing up to him. And particularly a little guy like me in 2003. Carl can try to orchestrate a short squeeze. He can do whatever he wants. He can try to scare my investors from investing with me, which it sounds like he is attempting to do on this call. We take prudent risks at Pershing Square. I’m going to end my—you know, I told Carl after the whole thing, he called me up and literally said, Bill, we can be friends now. I wish I had a recording of the conversation. I simply said to him, look, Carl, you are no friend of mine. And that was it. Every time he goes to TV, I will defend myself.”

  Icahn clearly had no interest in friendship. “I wouldn’t do business with you if you were the last man on Earth,” he replied.

  “I will tell you about Herbalife. I will tell you what I will tell you and what I said before. You know, I think Ackman did Herbalife, because I—obviously I don’t like Ackman. Ackman is lying about what happened. I didn’t need the $4 million I made there. What incensed me was that he weaseled out of the deal. We’ll leave that alone. You’re right. Happened ten years ago, leave it alone. He weaseled out of it. I’ll tell you that I’m known as a tough guy, but I think if you take my handshake you live by it. There’s no one will ever say I went back on a handshake. Let’s go back to Herbalife. This is the typical Ackman. I wouldn’t care if it was anybody else but Ackman. But he goes into the room and gets three hundred people and tells them how bad this company is. It is a classic stuff. They did it in the nineties. You scare the hell out of people. Get the stock down. He marks the stock on December 31st and makes $600 million on paper. And tells the world how great he is. He is giving to charity and shows the world he has made 12 percent, which isn’t so great anyway. I would like to say we made 28 percent last year without going and having to go pump and dump stocks and go and have rooms full of people. And in 2011, at the risk of being immodest, we made 33 percent without having to do what I consider to be manipulation, OK? And that’s what he did in Herbalife. He got a bunch of innocent investors, retirees, they are going to lose their money so Ackman can show a good record at the end of the year and, by the way, took an inordinate risk because a company like Herbalife, you can ask almost any pro, you don’t go 20 percent. And what the hell, he is not risking his money, he is risking his investors’ money. You go in and you got 20 percent and if there is a squeeze, which well might be in Herbalife, what the hell does he do. I would like him to answer, where does he get the stock when they call back all the stock? Let’s say there’s [a] tender offer for Herbalife and they call back the stock. If you know, you know, Wall Street, on a tender offer, everybody calls back the stock you borrowed. If that happens, that stock could rush to a hundred. What the hell does Ackman do? Ask him. He is right here on the phone.”

  “I’m happy to answer it if I get a chance to speak,” responded Ackman. “Number one, Carl is free to make a tender offer for the company. Carl, you want to bid for the company, go ahead and bid for the company.”

  “Number two, obviously we don’t think there will be a tender offer for the company. We don’t think the company is buyable. We don’t think any person will write a check for five or six billion to buy a business we believe is fraudulent. That’s number one. Number two, Carl Icahn says he doesn’t like the behavior, it’s bad. Meanwhile, 2003 at the conference in front of 500 people Carl Icahn pitched Trinity Industries, which he was short and short 22 percent of outstanding shares according to Fortune magazine. Carl, can you tell us whether that is true or false? But you did precisely that, so I find it interesting you have a problem with what we did in Herbalife. In Herbalife we simply provided to the public full transparency on this investment… 330 slides, in detail, not scaring people, but going through the facts on this company. We did exhaustive research over a year and a half. And we will either be proven right or we will be proven wrong. We shorted the stock. We have not covered our shares. And we have more to come, by the way. We have questions. The company has given us the opportunity to ask, and we will have responses for every issue they raise and their responsive presentation to us, and what I thank Carl for is he certainly helped highlight Herbalife and the issues at Herbalife, and my guess is that Carl bought Herbalife. If he did, because that’s what someone in his shop leaked to the press and he flipped it out when the stock went up. He made a good trade. Congratulations on a good trade. I don’t believe there is any good investor who can own this business long-term. We believe it’s a pyramid scheme; we believe we can prove that to a high degree of certainty.”

  All in all, “The Brawl,” as it soon became known, lasted for twenty-seven uninterrupted minutes.

  Trading volume at the NYSE dropped more than 20 percent.

  “Bill Ackman and Carl Icahn Just Brawled on CNBC in the Greatest Moment in Financial TV History” read the headline on Business Insider at 1 p.m.

  I was shell-shocked.

  Icahn was livid.

  Michael Johnson, who went to church the night before Christmas, was about to get his divine intervention.

  9

  THE ICON

  Carl Icahn strolled out of the back door of his sprawling seaside estate in East Hampton, the summer playground for New York’s wealthy, sat down for breakfast, and gr
abbed a small white tube sitting next to his grapefruit.

  It was August 2016, and he’d been nursing a cold.

  Icahn grabbed the plastic cylinder, popped out a tablet, and dropped it into a tall glass of water, sucking down the effervescent potion once it had fully dissolved.

  It was an Herbalife “Best Defense” pill, the company’s supplement that boasted on its label that it could boost one’s immune system.

  “I really believe this stuff works,” he said while looking out toward the Atlantic a couple hundred yards away.

  Icahn had been an Herbalife believer since the last days of 2012, when the company first came across his radar and he had the famous brawl with Ackman.

  On February 14, 2013, seventeen days after the televised tussle captivated Wall Street, the world learned exactly how serious Icahn was about Herbalife.

  “Icahn Reveals His Stake in Herbalife” flashed a headline on the New York Times’s DealBook page shortly after word of his official filing hit the tape.1

  Icahn had bought a 12.98 percent stake through common stock and options in a transaction valued at more than $200 million.2 It was a massive position with a clear message: Icahn wasn’t just backing up the truck for Herbalife—he was looking to run Ackman over in the process and wanted everyone on Wall Street to know it. Herbalife shares spiked 23 percent to more than $47 per share on the news,3 nearly the exact spot where it had been when Ackman had started shorting it. But as stunning as Icahn’s new position was for its sheer size, it was the timing of his trading activity that was most telling of his psyche.

  Icahn had begun buying Herbalife stock on December 20, 2012, the same day Ackman had delivered his presentation on the company at the AXA Center. Icahn’s top analyst, Jonathan Christodoro, had watched the event in real-time on the internet, saw the stock get pounded, and sensed the opportunity to make some easy money. Christodoro had been trained for moments like these. He had graduated with honors from Cornell, received an MBA with distinction from the University of Pennsylvania’s Wharton School, and had worked for the legendary hedge-fund manager Steven A. Cohen at S.A.C. Capital Advisors. He had also served in the Marines, was built like a tank, and, most important, had followed Herbalife for years. Christodoro had even gone to the company’s original “road show” when private equity firms J.H. Whitney and Golden Gate Capital were pitching the stock to investors ahead of its initial public offering. Christodoro knew the company inside and out and called Icahn, who trusted his young analyst’s instincts. Icahn saw the stock dropping like a stone too and was compelled to take the other side.

  “He said, you know this is crazy,” said Keith Schaitkin, Icahn’s then in-house attorney, who had spoken with his legendary boss about Ackman’s presentation. “Ackman is explaining that he has this short position, and Carl said it’s a very dangerous thing to do and let’s start looking at this. We started buying it right away.”

  With the boss on board, Icahn’s long-time trader, Edward E. Mattner, bought 748,308 shares at an average price of $33.41 in a real-time repudiation of Ackman and his wild assertions.

  While Mattner bought, the others got to work on Herbalife itself.

  Schaitkin hit the phones to call former FTC lawyers around the country while he quickly brushed up on years of murky pyramid-scheme law. Icahn’s guys poured through Herbalife’s financial statements, scoured the company’s public filings, and studied other historical cases brought against multilevel marketers before ultimately deciding the government wouldn’t shut Herbalife down.

  On December 21, Icahn grabbed another seven hundred and fifty thousand shares, and three days later one hundred and seventy-two thousand more.4 In the meantime, Christodoro flew to Los Angeles and spent almost two weeks meeting with Herbalife executives to turn over every stone he could find to refute Ackman’s allegations.

  In the days ahead, the more Herbalife shares fell, the more Icahn bought, until the position grew so large it passed the 5 percent threshold that required a filing with the Securities and Exchange Commission. On February 15, the day after Icahn revealed his filing, he called into CNBC for an interview with me on why he had taken the other side of Ackman.

  “I buy things I think are undervalued,” he said. “I think Herbalife is a very undervalued situation, and we’ve done a hell of a lot of research on this since Ackman has given me the opportunity by bashing it. It’s a great company to take private. I think there’s a great deal of money to be made here today.”5

  The comment was a shot at Ackman’s suddenly precarious position, and the off-the-cuff remark Icahn had made during The Brawl, when he threatened the “The Mother of All Short Squeezes.”

  Such a move could happen if Icahn, or someone else, tried to buy Herbalife outright and take the company private. If he did this, it would bid up the stock and force Ackman to cover—that is, buy back the stock he’d sold in order to give it back to the investors he’d borrowed it from—at a much higher price than he had entered at. The financial pain could be endless, and Ackman knew it.

  So did Icahn.

  “I’m not going to lie to you and say if he gets squeezed, I’m going to cry and do penance,” Icahn said during the live interview. “The fact that I don’t like Ackman, you can say that is the strawberry on top of the ice cream.”

  Icahn was already getting his sundae.

  Herbalife shares had risen more than 30 percent since he’d first started buying the stock, and Icahn seemed intent on keeping it that way. He pledged to meet with Herbalife management to discuss the business and consider any “strategic alternatives”—Wall Street speak for a deal.

  Icahn also made it clear that while hurting Ackman would be a sweet treat after their decadelong feud, his real motivation for buying the stock in the first place was for the score.

  “I don’t like Ackman; everybody knows that,” Icahn said. “I don’t respect him, everybody knows that, and I actually thank him for calling me a great investor, so I think that comes to the point. I do not as a great investor buy things just to get even with anybody. I am not buying this company and putting money into it unless I’ve done a lot of research on it and believe in it, OK? I do not believe that the regulators are going to act because a guy comes out and says you’re not doing your job properly and you better get moving on this. This company’s been around for thirty years, and they’re not waiting for Ackman to tell them what to do. And, by the way, I look at Ackman’s arguments and to me, they are completely amateurish.”

  It was classic Icahn, who looked at investing much like a game of chess—you position yourself smartly through careful strategy until you can move in for the kill, which Icahn had a history of doing.

  “He’s the greatest fighter in the world,” said hedge-fund manager and Icahn’s former protégé Keith Meister of Corvex Management LP. “There’s not a better situational investor. If you were a CEO of a Fortune 500 company and Carl was sitting there—there’s no one who would be a scarier threat. There’s no one who could be more intimidating or have better leverage in the world than Carl. Carl is just smarter than everyone.”

  Meister had first met Icahn in the late 1990s when, fresh out of Harvard, he’d gone to work for a real-estate private equity firm called Northstar Capital. Northstar had backed the takeover tycoon Asher Edelman in his hostile bid for Société du Louvre, the French holding company of the famed Taittinger family, but needed more money to fund the deal. Northstar had tried to sell the transaction to traditional private-equity firms known for that sort of business, but none wanted to get involved with a foreign-owned company, especially one with a convoluted voting structure. Enter Icahn, who not only had the money but was also willing to listen to just about any interesting pitch if there was a chance he could come out ahead.

  “So, I was sitting in a bullpen with like five other associates, and the next thing you know,” said Meister, “Carl is calling me because there was no one left at Northstar, and at Carl’s shop he was dealing with it directly. Clearly the neg
otiation went Carl’s way. Ultimately there was no deal we could do because his capital was too expensive, but I got to develop a relationship with him.”

  In May 2002, Icahn was so impressed with Meister that he hired him, but only after a slightly unusual interview process.

  “So, the first day I come in and like two hours I sit in the waiting room,” Meister said. “The next day he comes in and he’s like half trying to hide from you because he doesn’t want to talk to you but he feels bad. I think it was like the third day—I’ll never forget it—it was the day WorldCom blew up, so I’m sitting there and you watch people come in and I’m sitting there and there’s a bunch of bankers and Carl comes out and sees this kid who’s been sitting there for like three days and he says, ‘Hey you know what, come to the meeting with me and the WorldCom associates.’ He was like, ‘What do you think?’ And that was part of the interview.”

  Meister sat wide-eyed, finding Icahn to be a highly engaged, out-of-the-box thinker who could read and assess an investment idea faster than most anyone. It was also apparent, says Meister now, that Icahn wasn’t driven by emotion—even when it came to Herbalife.

  “My view is, if this wasn’t Bill on the other side of the trade, he never would have looked at it, but it’s not about spite—it’s about, ‘I can win, and I’m going to beat a really fun foe.’” Meister said.