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By Susan Bokermann
March 31 — Activist investing is giving the “power back to the owners,” said Bill Ackman, founder and CEO of the frequently activist hedge fund Pershing Square Capital.
Speaking at the Council of Institutional Investors’ spring 2015 conference March 30, Ackman said that shareholder activists provide options, but it’s the shareholders who decide.
“We will never do anything that’s not in the best interest of the owners of the company,” said the man whose fund has been behind recent high-profile campaigns with Herbalife Ltd. and Valeant Pharmaceuticals International Inc.
Ackman noted that there isn’t a chief executive officer “in the country who’s not afraid that an activist won’t buy a stake” in their company. According to Ackman, many CEOs want to make changes to their companies, but they don’t because the boards are “skiddish.” He believes the “phenomenon of activism has given boards more backbone in dealing with the CEO.”
Still, Ackman said it makes sense that CEOs don’t love activists. “It’s hard to go to the CEO of the company and say, ‘look, you’re the problem.'” Accordingly, sometimes activism is inherently contentious.
However, Ackman argues that although activists are prepared to do things that are openly hostile, it is always in pursuit of the best interest of the shareholders.
“One of the most important things I will ever do is cause [Herbalife Ltd.] to be shut down,” Ackman said, referring to his ongoing campaign with the dietary supplement maker regarding its marketing practices.
He admitted that people are not entirely comfortable with short selling, which has drawn federal interest in the case of Ackman's Herbalife-related activity, and that the result is “the shareholders hate you, and the management hates you.” However, he said that “Herbalife is a bad company” that takes advantage of undocumented workers and that it would have collapsed on its own.
In 2012, Ackman equated Herbalife to a pyramid scheme and revealed that his fund had taken a $1 billion short position against the company. In October 2014, Herbalife agreed to pay $15 million to settle a lawsuit by a former California distributor of its nutrition products who alleged the company's business model is a “pyramid scheme” that didn't allow him to make a profit.
One investor alleged that he lost money after Ackman claimed that Herbalife was a pyramid scheme, but Ackman’s allegations aren’t evidence that Herbalife committed fraud, a U.S. district judge ruled March 16.
Ackman said that going forward, Pershing Square is “looking for the highest quality company with the worst management.” He said that investment is “good for America” and noted that in making a profit, investment allows the creation of philanthropic foundations, such as the Pershing Square Foundation.
In response to a question about what motivates him, Ackman said, “[w]hat’s not fun about what we do?”
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