• Ackman had said Jefferies was working on unloading the holding
  • Icahn says he acquired 2.3 million additional Herbalife shares

Herbalife Ltd. backer Carl Icahn waited until after Friday’s market close to contradict fellow billionaire Bill Ackman, spending the day adding 2.3 million shares to his stake in the nutrition company as its stock tumbled.

In this latest tussle between the outspoken New York activist investors, the only clear outcome is that Icahn now owns even more of Herbalife: 21 percent. Ackman had said Friday that Icahn was looking to sell his stake, not add to it.

Meanwhile, Ackman’s hedge fund, Pershing Square Capital Management, is approaching the four-year anniversary of its $1 billion-bet that Herbalife is a pyramid scheme destined to collapse.

“Bill Ackman tried to play us this morning, and Carl Icahn played Bill Ackman this afternoon,” said Tim Ramey, an analyst at Pivotal Research Group and a longtime defender of Herbalife. “It’s so beautifully played on Icahn’s part.”

Icahn has been publicly assailing Ackman’s attempted evisceration of Herbalife -- on stages, television, in documentaries and online -- since a January 2013 CNBC phone-in fight. That July, Icahn told a conference he decided to look into Herbalife because he wasn’t “a great fan” of Ackman.

A year later at the same Delivering Alpha event in New York, both billionaires took the stage together and said their feud was over. Days later, Ackman delivered an emotional, nearly four-hour anti-Herbalife presentation that backfired -- lifting the shares 25 percent.

Public Short

Ackman has waged a public short campaign against Herbalife since December 2012, saying it should be shut down. Along with setting up a $1 billion wager against the stock, he hired investigators to look into the company’s business practices and gave public presentations making his case, while prodding regulators to conduct their own review.

Icahn took the other side of the trade in early 2013, snapping up 18 percent of the company’s shares and defending its multilevel marketing model -- in which products are sold both to consumers and new distributors. Herbalife later let Icahn name five board members as its largest investor.

Herbalife surged as much as 8.3 percent to $65.54 in late trading Friday, after Icahn posted a statement about his position in the company on his website. The shares dropped 2.3 percent to $60.50 in regular trading in New York, trimming an earlier loss of as much as 7.8 percent.

Shares Tumble

Ackman sent Herbalife shares tumbling when he said Icahn was looking to ditch his holdings. In an interview with CNBC, Ackman said investment bank Jefferies Group LLC approached him about buying a portion of Icahn’s Herbalife shares earlier this month.

He said he considered buying some of Icahn’s stock if it would help get Icahn completely out of his position. Ackman later confirmed to Bloomberg News that he didn’t buy any of Icahn’s stock and would have quickly sold the shares if he had.

“Completely contrary to what Bill Ackman stated on television today, I have never given Jefferies an order to sell any of our Herbalife shares,” Icahn said in his statement, in which he disclosed adding 2.3 million shares. “I continue to believe in Herbalife: It’s a great model that creates a great number of jobs for people.”

Ackman’s ‘Malady’

Icahn’s statement -- which critics noted didn’t directly address whether Jefferies had quietly shopped the stake for buyer interest -- went on to lambaste Ackman’s fixation on the company.

“Ackman may be a smart guy, but he has clearly succumbed to the same dangerous (and sometimes fatal) malady that afflicts many investors -– he’s developed a very bad case of ‘Herbalife obsession,”’ he said. “Obsessions concerning the value of stocks are the undoing of many investors because they often blind you to the facts, and it becomes impossible to see the forest for the trees.”

Ackman maintained his bet against Herbalife even after the maker of weight-loss shakes and supplements reached a $200 million settlement with the U.S. Federal Trade Commission last month. He said that the terms of the agreement -- which Herbalife hailed as an acknowledgment that its business model was sound -- would cripple the company and cause it to collapse.

Internal Thinking

Icahn’s response to the FTC agreement noted that he was allowed to raise his stake to as much as 35 percent -- something Ackman had previously opined wouldn’t happen.

“It amazes me that a guy who hasn’t any knowledge of my internal investment thinking believes he is in a position to go on television to tell the world what I AM thinking! Amazing!” Icahn said in Friday’s statement.

“He has no right to do so, and even worse, I’m sure his unsubstantiated, obsessive comments, especially about Herbalife, have cost investors a great deal of money over the last few years.”

Multilevel Sales

Meanwhile, Herbalife, the object of this billionaire battle, has repeatedly denied Ackman’s accusations. The company declined to respond to Ackman’s comments on Friday, though Chairman and CEO Michael O. Johnson quickly welcomed Icahn’s announcement.

“We appreciate the support of all of our investors and are particularly grateful to Carl Icahn and the conviction he shares, and continues to show in our business, as demonstrated by today’s significant increase in his stake in the company.”

The dispute over Herbalife’s business centered on whether there was legitimate demand for its products by actual customers or whether its sales came mostly from contractors who bought the products in hopes of making money by reselling them.

The FTC’s findings backed up many of Ackman’s claims, saying that the business was driven more by member recruitment than by retail sales and that a large number of its distributors lost money. The agency is forcing changes that could make it more difficult for distributors to profit. Herbalife will now have to depend on retail sales, which are to be verified by receipts, instead of bulk purchases by members.

Still, Herbalife has remained upbeat about its prospects. Earlier this month, the company posted second-quarter results that topped analysts’ estimates and said it expects to overhaul its business practices globally in response to the settlement. While the terms of the deal affect only its U.S. operations, the company said it would likely roll out some aspects of the agreement worldwide.

“Carl is the confidence behind Herbalife,” Ackman told Bloomberg before Icahn’s statement. “Once he’s out, the confidence is gone and the company collapses.”

So what happens when trading resumes Monday, after “the confidence behind Herbalife” -- an 80-year-old worth $19 billion -- has bet another $137 million on its future?

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