Herbalife goes for Ackman's credibility through Pershing fund clients - sources

December 9
11:18 AM 2013

Sources disclosed to Bloomberg that Herbalife Ltd is retaliating from Bill Ackman's pyramid scheme claim by doing the activist investor's strategy in a similar fashion. Ackman had been campaigning publicly against the nutrition products company. Three people who were familiar with Herbalife's plans said the latter had been approaching investors of Ackman's hedge fund Pershing Square Capital Management LP to pull their money from the USD12 billion company. The sources added that Herbalife claimed that Ackman's investment, which had already incurred up to USD500 million in losses, was irresponsible and risky. The sources refused to be identified as Herbalife's strategy was reportedly private.

Bloomberg's report cited two unnamed sources who said investment bank Moelis & Co, who is working for Herbalife, had set a meeting with the latter's executives and with hedge fund investments advisor Cliffwater LLC. Moelis reportedly reached out to Cliffwater's USD76.7 pension fund also, of which the latter has a USD207 million bet in Ackman. However, it was made clear that the New Jersey fund's executives had not met with Herbalife.

Columbia University professor of securities law John Coffee said, "Herbalife and Ackman have been fighting in one theater, and now the warfare has moved into an additional theater. "ll's fair in love and activism." Coffee also added that the tactic of pressuring activist investors through its clients is unusual.

When asked for comment about Herbalife's strategy, officials for Pershing, Moelis, the New Jersey pension fund, Cliffwater, including Herbalife, refused to comment.

According to Bloomberg, Herbelife's tactics is the latest development in a wager that urged Carl Icahn, another activist investor, to criticize Ackman publicly and had took a position against the latter. Due to Icahn's support, Herbalife saw its shares doubled this year as Stan Druckenmiller, George Soros's family office, Bill Stiritz, Richard Perry and Kyle Bass bought shares in the nutrition company.

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