Morning Brief: Ackman Says He Covered Herbalife Short Bet

November 02, 2017   Stephen Taub

The hedge fund manager has replaced his big short bet against the company with put options to limit losses for his firm’s investors.

Looks like Bill Ackman blinked first — sort of. The activist hedge fund manager told Reuters his firm, Pershing Square Capital Management, closed out its high-profile, controversial stock short of Herbalife, the multi-level marketer of nutrition products and other supplements that he had called a pyramid scheme, replacing it with put options. Ackman had announced the $1 billion short bet in late 2012 during a public presentation that lasted for more than three hours. Ackman still has a big negative bet on the company, but he told Reuters that potential losses now can’t exceed 3 percent of Pershing Square’s total capital.

"We can still lose money but the loss is capped," Ackman told Reuters.

Shares of Herbalife closed Wednesday at $70.84, down about 2.5 percent. Pershing Square disclosed that Herbalife was its biggest loser in the first half of the year, when Pershing Square International fell 1.5 percent. Pershing Square gained 2.7 percent in October, cutting its loss for the year to 3.3 percent.


Good news for internet momentum investors. On Wednesday evening Facebook reported quarterly revenues and earnings that easily exceeded consensus forecasts, while revenue grew faster than expected. As a result, the stock jumped about 2 percent in after-hours trading, even though Wall Street was already anticipating a "beat." Facebook was the most widely-held stock among hedge funds at the end of the second quarter, with at least 173 reporting a position, according to Goldman Sachs.


Shares of Terex fell nearly 5 percent, to close at $44.85, after dropping as much as 8 percent, even though the company reported quarterly revenue and earnings that blew away consensus estimates. In fact, many investment banks applauded the "beat" in notes to clients Wednesday morning. The company also increased its earnings guidance for the year.

One possible theory for the sharp stock drop: Several analysts think the company is facing margin pressure. For example, UBS raised its 2017 estimates but trimmed its 2018 and 2019 estimates "to reflect lower margins…plus lower buybacks," according to a note to clients. It maintained its buy rating and $52 price target. 

Terex is the largest holding of Mick McGuire’s Marcato Capital Management, which in turn is the company’s third largest shareholder. At September’s Delivering Alpha conference, McGuire said the manufacturer of construction equipment such as frames, boons, lifts and material processing equipment has huge potential if the previously acquisitive company does three things: focuses on its core businesses and sells the rest, maximizes return on capital, and takes cash from the sale of several of its businesses and returns it to shareholders. He thinks that over the next four years the company can more than triple its return on invested capital as well as its cash flow. Meanwhile, the company has bought back about 25 percent of its stock. Since the beginning of September the stock is up about 13 percent despite Wednesday’s sharp drop.


Perceptive Advisors disclosed that as of October 24, it owned more than 8.3 million shares of Quotient Limited, or 17.4 percent of the diagnostics company. The healthcare-oriented hedge fund firm owned a little more than three million shares of the company as of the end of the second quarter, the last period for which its quarterly holdings are available.


Kerrisdale Advisers disclosed that it owns more than 1.47 million shares of Adamas Pharmaceuticals, or 6.5 percent of the company, which focuses on treatments for chronic neurologic disorders.


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