Hedge Fund Cannibalism?
Two of the most prominent investors in the world, Carl Icahn and Bill Ackman, had Wall Street mesmerized on Friday as years of acrimony exploded into a bruising verbal scrap on live TV.You can watch the entire exchange of this billionaire brawl below (also available here). I've already discussed hedge fund Darwinism. Welcome to hedge fund cannibalism.
Initially CNBC was only talking to Ackman, but then the cable TV station put Icahn on as well and all hell broke loose.
The argument centered on nutritional supplements company Herbalife Ltd (HLF), in which Ackman has had a well-publicized short position that Icahn has slammed.
Icahn, 76, who has gone from feared corporate raider to activist investor in more than three decades of dealmaking, called Ackman, 46, a "liar" and "the most sanctimonious guy I ever met in my life."
In a tirade that included expletives, Icahn said he would never invest with Ackman and predicted investors in his Pershing Square hedge fund would lose a lot of money on the Herbalife bet. U.S. news outlets have reported that Icahn has a long position in Herbalife, although he has not confirmed that.
Ackman, who is usually much more restrained than Icahn when speaking publicly, got in a few verbal shots himself. Icahn "does not have a good reputation" and "is not an honest guy," he said.
The altercation quickly became the talk of the financial world, both on trading floors and on Twitter.
"I will never delete today's Ackman vs Icahn CNBC debate from my DVR. Even when DVRs are like Betamaxes, I'll force my grand kids to watch," tweeted Eric Jackson of hedge fund Ironfire Capital LLC.
Business Insider Deputy Editor Joseph Weisenthal tweeted: "It's never going to get any better than what we just saw."
The influential blog ZeroHedge called it the "Ultimate Hedge Fund Deathmatch: Icahn And Ackman As The Real Billionaire Husbands Of CNBC Going Wild."
BusinessInsider held an online poll: "Who Won The Brawl Between Carl Icahn And Bill Ackman?" As of 5 p.m. New York time, 70 percent of the more than 1,800 people who voted declared Ackman the victor.
Neither Ackman nor Icahn could be reached for comment after the CNBC show.
Ackman has called Herbalife a "well managed pyramid scheme" that he predicted will collapse. Herbalife has denied the allegation.
"On CNBC today, Mr. Ackman continued to misrepresent Herbalife," an Herbalife spokeswoman said on Friday.
"Herbalife is a financially strong and successful company, having created meaningful value for shareholders, significant opportunities for distributors and positively impacted the lives and health of our consumers over our 32-year history."
DECADE-OLD DISPUTE
The genesis of their feud stems from a nasty contractual dispute involving a real estate company deal 10 years ago, when Ackman was running his former hedge fund, Gotham Partners, which he co-founded in 1993 with former Harvard Business School classmate David Berkowitz.
After eight years of litigation, a court ruled in Ackman's favor and Icahn was forced to pay Gotham $4.5 million, plus interest.
Indeed, the discussion on CNBC often had little to do with the merits of Ackman's view of Herbalife. At times, Icahn also feuded with CNBC host Scott Wapner, accusing him of "bullying" him when he was pressed on whether he had gone "long" on Herbalife shares.
Icahn may have little to lose from the dustup given that he is simply managing his own money these days. Ackman, on the other hand, manages about $11 billion at Pershing Square, including money from many prominent institutional investors.
Herbalife shares briefly surged over 5 percent when Icahn said during the row that Ackman, by going public with his big short position, would cause the "mother of all short squeezes" in the stock.
A short squeeze is when short sellers are forced to cover their position, a move that pushes a stock higher.
Ackman and Icahn's dislike of each other is well known in financial circles. Some of the tension stems from the fact they both specialize in the same game - taking big positions in companies and agitating for management changes.
Ackman's bet against Herbalife is also being challenged by another big hedge fund player, Third Point manager Daniel Loeb, who has said he holds a big long position on the stock.
Several thoughts ran through my mind as I watched this sad display of "my hedge fund penis is bigger than yours." First, I'm glad I didn't touch Herbalife shares when they plummeted after Ackman came out to call the company a "pyramid scheme." Was very tempted to trade it, would have made great money, but when hedge fund titans are involved, best to steer clear from these companies as anything can happen.
Second, Carl Icahn came off looking like an obnoxious prick in this CNBC interview. It's obvious he detests Ackman, and he raised some good points on the suspicious timing of Ackman's announcement and risks of his big short position, but he refused to answer a simple question on whether he's long Herbalife and accused CNBC's Scott Wapner of "bullying" him (pot calling the kettle black) and threatened never to come back on the show.
Third, and most importantly, hedge fund billionaires should never go to war like this on live television. This is especially true of prominent high profile Jewish investors who should know better. My 81 year old father, a psychiatrist, tells it like it is: "Jews can vigorously disagree with each other in private but unlike us Greeks, they have the wisdom not to air their dirty laundry in public."
So my advice to Mr. Ackman and Mr. Icahn is to listen to my father and keep their ongoing feud private. Many people are struggling to make ends meet and the last thing they need is to watch two billionaire hedge fund managers with mega egos squabble on live television like little children. It's great for CNBC's ratings but makes them both look like childish schmucks.
Below, Carl Icahn discusses his outlook on Herbalife and Bill Ackman on Bloomberg Television's "Street Smart." Also embedded the entire exchange on CNBC of the infamous billionaire brawl.