Sunday, April 22, 2018

Wapner, When the Wolves Bite

The title of Scott Wapner’s book, When the Wolves Bite: Two Billionaires, One Company, and Wall Street’s Most Epic Battle (Public Affairs/Hachette Book Group, 2018), comes from an article in the Yale Law Journal: “Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System.” That’s as academic as the book gets, which is fine, because, even if you know most of the story, it’s still a page-turning account of what became a vituperative personal battle over Herbalife. Is Herbalife in effect a Ponzi scheme that the government should shut down (Bill Ackman’s position) or is it a legitimate company on which investors can make money, especially in the event of a short squeeze (Carl Icahn’s view)?

Scott Wapner was the obvious person to write this book since he hosted “the brawl” between Ackman and Icahn on CNBC’s Halftime Report (January 25, 2013) in which Icahn, despite his Princeton philosophy degree, sounded eerily like his friend Donald Trump, with claims such as “as far as I’m concerned the guy [Ackman] is a major loser.” Unfortunately for Ackman, Icahn would be right in one sense—Ackman would take a major loss on his short Herbalife position and Icahn would profit handsomely from his investment in the company.

Herbalife is a multilevel marketing (MLM) company in which distributors are compensated for what they sell as well as for how many new recruits they bring in. In its swashbuckling early days it often seemed to cross the line of legality, and, even as the shorts and longs battled it out, the FTC fined Herbalife $200 million and put in place regulations to ensure that it had real customers and didn’t misrepresent how much money its distributors could make.

Wapner delves into the early research that eventually prompted Ackman to short the company’s stock and explores the role of activist investors. But at its heart When the Wolves Bite is a tale of outsize egos going to battle using the money of investors in their funds. Ackman came out bloodied, his reputation tarnished (not only by his Herbalife position but also by his forays into Valeant and ADP), and his assets under management now half their 2015 peak. Carl Icahn, in the meantime, stepped down as President Trump’s special adviser on deregulation amid controversy and is smarting from three straight years of either outright losses or massive underperformance in his investment fund.

Is there a moral to the story? I could suggest several, but I’m sure my readers could think of even more. So I’ll leave it to your imagination. In the meantime, if you want an engaging, fast read, When the Wolves Bite may be just the ticket.

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