Hedge-fund activist Bill Ackman has increased his bet on Herbalife’s demise, he said at an investment conference in New York.
When his Pershing Square Management restructured part of its Herbalife short into put options, a process it began last September, it “didn’t simply just transform from being short,” Ackman said.
“We actually now have a much larger position notionally than we had initially.”
The billionaire investor, who said 14 months ago he believes the Los Angeles company is a pyramid scheme, said at the conference that “if [Herbalife] were to disappear tomorrow, we’d make a lot more money than had it just blown up the day after I made my last presentation.”
Herbalife has strongly denied it is a pyramid scheme.
In his most recent report to investors, Ackman indicated the short’s marked-to- market value was $1.16 billion as of Jan. 31 — a number that includes the value of both equity and puts.
The highly publicized short bet was helped by the recent $1.1 billion convertible bond offering that Herbalife financed last week to help it buy back shares, as the company is now carrying debt, Ackman said.
“On the margin, it’s helpful to us. Now the company is a levered pyramid scheme, and we like that,” he said.
Ackman said that had Herbalife been able to borrow from a bank or issue traditional bonds even with a slightly higher interest rate, its overall cost of capital would have been lower.
The convert financing did not create the short squeeze on Ackman investors had anticipated, the hedge-fund investor said at the Boys & Girls Harbor Investment Conference.
Herbalife was trading at about $44 a share when Ackman announced his short bet, It closed Thursday at $66.90, up 2 percent.
Ackman at the conference on Wednesday also said he thought Target had “lost some if its magic.”
Ackman waged an unsuccessful proxy fight against Target in 2009.