Business

Herbalife bet made $ense

LONDON — Here in the British capital they still remember it as Black Wednesday, that day in mid-September 1992 when investor George Soros “broke” the Bank of England and got handed $1 billion in the process.

That’s why there was so much interest here this past week when Soros went up against a far less formidable foe and delivered another Black Wednesday to remember.

This time his target was Bill Ackman, the founder of Pershing Square Capital who seems to accumulate enemies on Wall Street the way the queen gathers tiaras.

For those who haven’t been following Wall Street’s favorite spectator sport, Ackman is the hedgie who spent a reported $1 billion shorting the shares of the nutritional supplement provider Herbalife, in the belief that it was a Ponzi scheme that the government would eventually force to shut down.

But a funny thing happened on Ackman’s hoped-for Herbalife march to zero — the company stock has nearly doubled this year.

As a result, Ackman’s enemies — starting with legendary investor Carl Icahn — have happily taken the other side of the trade. But it was news that Soros has now made Herbalife one of the top three long positions in his fund that really set Herbalife shares on fire and had headlines blaring, “Ackman’s Worst Day Ever.”

But while Ackman was quick to charge Soros with a synchronized short squeeze and called for an SEC investigation, the plain fact is that Herbalife’s business is firing on most cylinders. On the day before Soros announced his stake, the company reported second-quarter earnings that far exceeded expectations.

Cash flow like that, share buybacks and money to pay out more than $100 million a year in dividends add up to a short seller’s nightmare, even without Soros’ bullish bet.

Ackman now seems to be trapped on all sides in his Herbalife short. The Soros stake is just another chapter in what is starting to look like the biggest short squeeze since the one on the English side of the Atlantic.