Pershing Square’s Bill Ackman, who has been engaged in a 5-year long feud with Herbalife, betting its stock price would tumble to zero, came one step closer to admitting defeat on Wednesday when he told CNBC that his hedge fund recently restructured its position in the nutrition and supplements maker. “We converted the short position into a put position,” Ackman said in an interview with CNBC, adding that his firm’s potential losses on Herbalife will now be capped at 3 percent of the firm’s capital. “We can still lose money but the loss is capped.”
But the best part of the interview was the following admission:
“We’ve been entirely right on our Herbalife investment in terms of the fundamentals of the business. We’ve been wrong on the share price. A big part of that is the fact that companies repurchase a huge amount of shares,” Ackman said, confirming what we said back in 2012, namely that as a result of the company’s ongoing preference – following the advice of Carl Icahn – to reuse every dollar of cash flow to fund stock buybacks, those short the name stand to suffer tremendous pain… like Ackman. It’s also why HLF stock price just hit $73, more than 3x higher from where Ackman put on his short, and up more than 50% YTD.
This post was published at Zero Hedge on Nov 1, 2017.