Friday, December 20, 2013

Manure! Part Deux-Deux


During a conversation with an esteemed colleague I discovered that it was his birthday. I immediately congratulated him on being another year older to which he replied, "Thanks, but I'm actually just another day older." So with all the fanfare that I'm sure will accompany the anniversary of Bill Ackman's Herbalife short position, I remember that it is just another day that his thesis is getting older and just like all of us, the sad truth behind each passing day is that it brings us another day closer to our demise. I wish that I could bestow a hearty "Happy Birthday" and clap on the back to Ackman's Herbalife short position, but instead of watching his little tyke grow older I feel like we're going back in time. 

In Back to the Future, we watch as our hero Marty goes from lowly dweeb and sleepy-headed slacker extraordinaire to saving the dignity of his town and his family by preventing the rape of his own mother in a parking lot. We even watch as his family disappears before his eyes in a family photo as he struggles to set right the world he unwittingly perturbed. 

In Ack to the Future II, we watch as our dear Billy goes from Hunk of Burning Cerulean Blue Billionaire Hero kickflipping through Hill Valley on his hoverboard to buried under a $821M $858M pile of manure. Before you know it, Michael Johnson will be chiding him for not putting a second coat of wax on the bimmer. His Sohn presentation was attempted parking lot rape if I ever saw one. And as far as his disappearing family is concerned, Billy has may have set about erasing his Herbalife short family on his own. 

Before we get to his family, lets run through that $821M $858M pile of manure. I'll break this into two sections:

  1. the manure he's spitting out of his mouth (realized losses)
  2. the manure currently covering the interior of his Ford Super De Luxe convertible (unrealized marks)
Let's start with the post-manure tooth check (strictly platonic of course). Billy has probably realized losses on 9.8M shares he covered, dividends he paid on those shares for three quarters, dividends he's paid on another 14.7M shares he's paid for 4 quarters (he is still short), the cost of his borrow (I'm using 2.5% compounded continuously) and legal costs all stuck up in his grill. 

Moving on to a quote for cleaning the manure out of Billy's Ford Super De Luxe (provided by Biff's Auto Detailing, naturally), as of today's close, Billy has probably marked 14.7M shares at $78 $80.61 and marked 13.5M shares worth of Jan 2015 50X puts at a ~31% ~30% markdown.

Unless he went about covering, (oops I mean restructuring), more of his Herbalife short Billy and Pershing Square investors are probably sitting on a $821M $858M loss in Herbalife.

If that weren't bad enough, unlike our hero Marty who did everything in his power to save his mediocre family, I believe Billy has gone about erasing those in his Pershing family that helped him set his Herbalife short in motion, by putting distance between Pershing and his core Herbalife team. For all the accolades that Bill gave Shane Dinneen last year at the Sohn conference, he hasn't said much about Shane's exhaustive efforts recently. For somebody that goes out of their way to name very junior hires in monthly and quarterly letters, I find it odd that Bill hasn't publicly disclosed he has fired Shane* mentioned the recent distance I believe exists between Shane and Pershing
*Note here that Pershing seemed to be acutely sensitive to the word "fired". Through a conversation I had with a rep from their PR agency Rubenstein, they were emphatic that Shane had NOT been fired. I informed their rep that I was very careful in my choice of words because "fired" is indeed a technical term which could mean that he is still on payroll, but not actively engaged in analyzing or managing the Herbalife position. I posited that I believed that he had been and will continue to be on some sort of break or hiatus and directly questioned their rep whether or not they would confirm or deny that he has been on some type of hiatus and not actively engaged in managing or analyzing the Herbalife position. I received no direct response to this question and the rep continued that Shane had not been fired. They strongly reaffirmed their request, that I refrain from using the word fired. I agreed to modify the language of my post to be very clear that I do NOT believe that Shane has been "fired" (at least not in the Donald Trump sense of the word), because I do believe he is still on payroll. I will also reaffirm that I believe Shane has somehow been decoupled from the Herbalife position for weeks now and may continue to be decoupled in the future. At the moment of this update, I have traded emails with their PR rep and am awaiting a response to my most recent email. If in fact they provide me with a response that states that Mr. Dinneen has not been and will not be on any type of hiatus and will actively be involved in managing Pershing's Herbalife position, I will immediately correct my post further.
To be accurate I guess "fired" may be a little "technical", but I believe Shane has NOT been in the Pershing Square Offices. Leave of absence, break, vacation, lacuna, interval, hiatus, time apart; whatever conversation Bill may have had with Shane, I'm sure he let Shane know "It's not you it's me." That being said I believe Shane Dinneen and Pershing Square are lovers no more. And really let's face it, it's not Shane**. 
**I am expanding this beyond what was contained in the previous post because I couldn't be more emphatic in my own opinion that Shane deserves respect. I'm not saying this because Pershing is asking me to (because they haven't), but because I want to: I'm sure that Shane spent a HUGE amount of time and effort digging into the guts of the Herbalife short thesis and regardless of what the longs or shorts may say, I have the utmost respect for Dinneen. Not many 2008 graduates show enough promise to be brought up on stage at a special Sohn conference to be publicly commended by the head of a $13B fund that is announcing a HUGE short position made possible by a promising young staff member. My post was not intended to mock Shane or to ridicule him in anyway, but meant to pick apart the nuances of Pershing's Herbalife trade. My belief was that Bill was the emphatic voice, passionately driving the desire to launch the Herbalife short and that Shane had done all the heavy lifting that allowed Bill to move forward with his desired trade. Make no mistake that it is not my belief that Shane walked up to Bill and said, "Hey, let's put on a $1B Herbalife short, based on my research." I believe it may have been the opposite in that Bill thought Herbalife was a short based on Indago's research and asked Shane to thoroughly vet Indago's work. I also think that Herbalife's move against Pershing is the cause of the distance between Pershing and Shane that I believe now exists. If Pershing would have made $1B this year on Herbalife I think Shane would be a PM by now. It's just how hedge funds work. I didn't invent the rules, but we all know what they are. Shane, I can't say more sincerely and emphatically that if I have caused you and your family any duress I apologize. Shane probably doesn't give a shit about my opinion at this point, but for what it's worth, I congratulate him on his immense effort and wish him nothing but the best in his future as I'm sure he'll do well.
Shane was a Junior staff member that probably worked his ass off on this short. I'm sure he put in 14 hour days and scrubbed through as much data as he could get his hands on. He happened to be wrong in his analysis but Ackman should have known better. Shane was not the one that amassed an extremely concentrated short and then announced it to world. Bill is the registered investment adviser, but Shane is expendable. Bill needed a neck for his albatross. But why would Bill hide the fact that he has "fired" there is distance between Pershing and Bill's lead analyst on his Herbalife short? Well that would mean he'd be publicly admitting defeat. And why would you be hiding that you're defeated? I can only assume that he's quietly winding down his Herbalife short. If word got out that he fired there was any sustained distance between Pershing and his star Herbalife analyst while sitting on a $821M $858M loss there wouldn't be much left to the imagination. Really, what kind of fiduciary amasses an 8% position (short), peacocks it publicly, then fires the allows distance between his fund and the one guy in the office that knows more detail and nuance than anyone else? I think everyone would agree that you don't fire your allow any distance between your position and your star analyst on one of your largest positions at the end of your year if you plan on maintaining that position until the "ends of the earth" as you've claimed. If you had any intention of sticking around Hill Valley for any meaningful amount of time, you may tuck your DeLorean behind a sign (you may need it in the future), but you sure as hell wouldn't scrap it.

And if Bill has any hope of getting back to the future, he better juice up the flux capacitor and step on the accelerator. Herbalife's debt deal is like the lightning that is going to strike the Hill Valley Courthouse's Clock Tower. We all know it's going to hit at 10:04 p.m., but will Billy be stuck in 1955 or will he make it safely back to 1985? Bill has done his best to delay the strike, but he too knows it's inevitable. He's put on a good show, ever keeping the steely visage of the oracle he wants us all to believe he is. He even went so far as to publicly release an 11 point, 52 page letter he sent to PwC. After that though he was quietly at work behind the scenes, sending letter after letter practically every single day to PwC in an effort to slow up the release of Herbalife's re-audited financials. Turns out his efforts paid off; all that extra scrutiny he levied on the company helped PwC be certain that their SAS 100 numbers were extremely accurate and that their review of Herbalife's business practices were thorough. Now that the re-audited financials are out there I wonder who Billy will correspond with? Maybe he'll write recommendation letters for Shane, or maybe he'll just troll Herbalife CFO John DeSimone and junk up his inbox with spam. 

DeSimone would be a fitting target of Ackman's rage considering that DeSimone danced around questions yesterday December 18th on an investor call (being certain that he didn't say anything that hadn't been publicly disclosed) about Herbalife's planned share repo. Judging by the tenor and measures of DeSimone's responses, Herbalife is currently working a deal with bankers for investment grade debt that they will use for a massive share repurchase; keep in mind, if Temasek doesn't take them private the repo will be massive enough to swallow a minimum of 25 million shares. And if anyone knows the value of this company, it is the CFO. No wonder why Carl Icahn and Bill Stiritz aren't selling.

So where does that leave Ackman? It's 10:03pm and he's sitting in the DeLorean waiting for the alarm to sound. He's gassed up with a $821M $858M loss, he kicked Dinneen to the curb Dinneen isn't riding shotgun, and his fund is in for $1B with Libyan terrorists. 

If Herbalife hits $88, Ackman may be OUTATIME.


  1. Hilarious! Unless you're a PS investor of course ...

    Seriously, Ackman (and Shane) have been the best thing to happen to the entire MLM category since FTC vs Amway in the 70s.

  2. Can you please tell me how you searched for the Carl Icahn isn't selling link from EDGAR?