Loeb, Chapman Connection Goes Back at Least 12 Years


The battle of Herbalife (NYSE: HLF) could hit a new level as Bill Ackman is all set to speak at the Harbor Investment Conference tomorrow.

The speakers usually discuss their favorite stock picks and the obvious expectation is that Ackman will discuss his short position in Herbalife Ltd. (NYSE:HLF) and then there is the Q&A session which adds further intrigue.


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Herbalife has yet to respond to the list of questions that Ackman put forward earlier this month.

Ackman’s stance on Herbalife (NYSE:HLF) is well know in the investment community. While he is expected to remain vocal, the interesting piece in this battle has been how quiet Dan Loeb has been.

He has not spoken about the company since he acquired a considerable long position in the stock. For Loeb, that is pretty unusual.

His style of activism and investing involves active and public participation; he goes long on companies where he thinks there is some unexplored value, shouts at the company’s board, brutally criticizes or if they are lucky uses veiled barbs and then in most instances, gets what he wants.

If you want proof, look up his conquests at Agribrands, Star Gas Partners, L.P. (NYSE:SGU), Murphy Oil Corporation (NYSE:MUR) and Yahoo! Inc. (NASDAQ:YHOO). However the way he acquired HLF and had no constructive criticism to contribute to the company except that Bill Ackman’s short thesis was baseless, is so uncharacteristic of him, it seems unnatural.

Loeb does not have a minor stake in Herbalife Ltd. (NYSE:HLF), it is 8.9 million shares which is 8.2 percent of the company and worth $350 million, he even had words dipped in sarcasm for Morgan Stanley (NYSE:MS), which we are almost certain is a smaller position of his.

Even David Einhorn had some suggestions for Apple Inc. (NASDAQ:AAPL), a company he is very bullish about and is greatly in love with, but Loeb had absolutely no plan for Herbalife Ltd. (NYSE:HLF), now it cannot be that good, can it be?

This silence reminds us of what Bill Ackman said in the heated CNBC interview about Loeb’s position in Herbalife. He speculated that Loeb is in it for a quick profit, he does not truly believe in the company, he said in a recent interview:

“I think he is in this for a trade, I dont think he is going to be a long term owner of the stock.”

The evidence does support that, Loeb acquired the stake days after Ackman issued his 300 slide short thesis, at the end of last year.  Of course, there is the other possibility that Loeb is keeping his suggestions private, for Herbalife’s eyes only.

Judging by the amount of publicity and notoriety the stock has picked up, even constructive criticism can affect the nutritional supplements company and Loeb’s stake which he obviously wants to profit from if he has not exited it already.

It is said that Loeb’s style of shaking things up and ridiculing managements that he dislikes is inspired by Robert Chapman of Chapman Capital. Both Chapman and Loeb have agreed with each other on several occasions; in fact Loeb has discussed his employees and their shortcomings with Chapman, and this sounds like they are pretty close.

Loeb liked the way Chapman handled American Community Properties, both investors owned a stake in the company in 2000. Chapman approved of Loeb’s long winded activist battle with Yahoo! Inc. (NASDAQ:YHOO). “He acts in our interest,” said Robert Chapman in early 2012, he owned a 2 percent stake in Yahoo at that time. “Because if the stock tanks, no one gets hurt more than Dan.”

The latest in the agreements is Chapman’s long bet in Herbalife, one he acquired or at least made public before Dan Loeb did. Chapman is not a new investor in Herbalife, he owned 3-5 percent of the company back in 2000 and launched an activist campaign with the board to press for the sale of late CEO Mark Hughes’ majority stake and also berated the company for paying overlarge compensations to its top employees.

Interestingly Chapman’s first tussle with Herbalife was underway around the same time he was battling it out with American Community Properties and this one spiked Loeb’s interest and approval.

In early January of this year, Chapman released a missive when his fund acquired a 35 percent position in Herbalife, we do not know how much Chapman Capital manages so there is no knowing how large or small his stake is. In the letter he talks critically about Ackman’s way of shaking up companies, going very public with his positions and making suggestions to the companies that later convert to blatant demands.

There is some irony in the way Chapman profiles the style of Ackman, as Chapman is himself known for doing exactly the same thing, with the addition of using ridicule as a weapon as well. Chapman pioneered the trend of writing pungent public letters, he has admitted himself:

“The power of hostile 13Ds comes from the publicity, Ridicule is a radiating weapon, like a nuclear bomb.”

What stands out in all this feuding and supposedly colluding on similar sides of Herbalife Ltd. (NYSE:HLF), is how everyone keeps launching personal attacks on Bill Ackman and other short sellers of HLF. Herbalife’s management has done it and Carl Icahn has done the same on public television.

Moreover, both Chapman and Loeb saw value in Herbalife after Ackman’s short in the company was made public. An opportunistic trade is of course not wrong, but it merely gives more evidence that this is a trade for them, not a longstanding investment.

Stay tuned to ValueWalk, we will be liveblogging Bill Ackman’s presentation from Harbor Investment Conference tomorrow, where we hope to get the latest scoop on Herbalife Ltd. (NYSE:HLF).

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