Two arch-enemy billionaires, Carl Icahn and William Ackman, are in a tug-of-war battle over Herbalife Ltd. for Icahn’s shares in the company.
Icahn has an 18 percent stake in the company, which amounts to some 17 million shares and $1 billion dollars, reports Fortune. Icahn’s stake in Herbalife is the single largest share in the company that Ackman calls a “pyramid scheme,” according to the Wall Street Journal.
Herbalife, a global nutrient company, is a direct-selling firm. Instead of purchasing its products (like protein shakes) in stores, one must become a member of the Herbalife network. The company distributes “its products exclusively through a network of 3.7 million members in about 90 countries,” reports the Atlantic.
Once a member of the network, consumers buy Herbalife products in bulk and then can either choose to sell them or consume them. Compensation for sales is based “not only from the products they (members) sell, but also from bonuses related to sales by new members they recruit,” according to the Atlantic. Members will not receive payment unless those recruited to serve under them sell “several thousand dollars’ worth of shakes and supplements,” according to Atlantic, the traditional setup of a pyramid scheme.
The Federal Trade Commission (FTC) investigated Herbalife and concluded in July that while the company is not a pyramid scheme it must change the way it operates.
Icahn’s move to sell is interesting, considering that he was expressing optimism for the company to turn things around in July.
Ackman says that Icahn came to him with a proposition to purchase his shares through the investment bank Jefferies Group, according to CNBC. When asked why Icahn is considering selling his shares, Ackman said, “I think he knows this is toast,” and “he’s made bunch of money,” according to CNBC.
Ackman reportedly told Icahn no, but has recently stated he will consider purchasing a few million shares for around $30 million dollars. Ackman says he “would spend $30 million to get Carl out.” He notes that the confidence in the company is directly tied to Icahn’s position. Ackman acknowledges that, “with Carl exiting, I think the thing is over, and over quickly,” reports CNBC.
Icahn retorted to Ackman’s claims that the company would be over with “the cloud over Herbalife is gone,” and that the company can now “thrive,” the Journal reports. Following these claims by Icahn, experts say it isn’t clear if Icahn will now be willing to sell his shares.
This is not the first fight between the two billionaires. Icahn and Ackman “battled for seven years in multiple courts, over a relatively paltry $4.5 million,” the New York Times reports. During this battle, Ackman called Icahn a “shakedown artist,” whose “word is worthless.” Icahn was unfazed by his comments, saying that Ackman was a “young gunfighter” who “just likes pounding himself on the chest,” the Times reports.
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