Herbalife Had 'Secret Dossier' on Bill Ackman

Just as Herbalife Ltd. (HLF) finally celebrates the win of its over five-year-long battle with billionaire hedge fund manager Bill Ackman, a story by CNBC suggests that the fight was taken more seriously by the Los Angeles-based multi-level-marketing firm than ever expected. 

Ackman and his firm, Pershing Square Capital Management, wreaked havoc on the nutritional supplement company back in December 2012, betting a whopping $1 billion against Herbalife on the grounds that it was an illegal pyramid scheme that preyed on low-income people and minority groups. Shares of HLF initially plummeted, leaving the firm and its Chief Executive Officer Michael Johnson scrambling. (See also: William Ackman’s Crusade to Take Down Herbalife.)

According to an excerpt from the forthcoming book "When the Wolves Bite: Two Billionaires, One Company, and an Epic Wall Street Battle" by Scott Wapner, cited by CNBC, Johnson ordered a top-secret report on his enemy. The 30-page workup was delivered to the CEO in the spring of 2014 and read like "something out of a spy novel," wrote Wapner. The in-depth psychological profile on Ackman, titled "Preliminary Report on Bill Ackman," was commissioned by Jana Monroe, Herbalife's vice president of global security and was prepared by Dr. Park Dietz, one of the leading forensic psychiatrists in the U.S. The document, like "the kind the FBI might do when chasing a hardened criminal," was intended to "get into Ackman's head," so as to better understand his siege against Herbalife and figure out his likely moves so that the company "could be preemptive rather than reactive." 

Psychological Profiling 

Of the early "critical findings" of the report given Monroe, who had 30 years of experience in law enforcement, indicated that that Ackman was in it "for the long haul." The Herbalife executive had spent two decades with the FBI, five of those with the elite serial crime unit called the National Center for Analysis of Violent Crime. The document, which took about six weeks to prepare and cost Herbalife $100,000, tore apart the Wall Street investor in dozens of pages, as a man "aggressive and competitive in all things" who "craves association with other 'special people' and institutions."

Dietz doubted the integrity of Ackman's philanthropic efforts, suggesting that he saw Herbalife as a "target that offered him the potential to reap rewards for his investors while appearing to be a crusader for the downtrodden."

Alongside helping Herbalife understand Ackman, the report also advised the company on how to navigate a potential relationship with the short seller. Under "Strategic Priorities," Dietz advised Herbalife ot "keep open a door to genuine alliance," wherein ground rules should be "closely negotiated." 

Icahn's Involvement

The report recommended using "Ackman's highly public campaign for what it is: an opportunity to tell the world about (the company)," and suggested doubling down on a positive narrative around Johnson. "THIS is the good guy ... Convey his energy, enthusiasm, and vision for Herbalife," read the report. 

Trading at $103.04 at Friday close, HLF stock reflects an approximate 130% gain from a price of around $45 when Pershing Square first revealed its bet against the company. On air with CNBC earlier this year, Ackman announced the end of his firm's short against HLF and his dispute with Carl Icahn, a champion and major investor in the multi-levelmarketing firm and a former "special advisor" to President Trump. Many on the Street have looked at the news as an opportunity to buy HLF, sending the stock up 51.2% year-to-date (YTD), sharply outperforming the S&P 500's 0.1% loss over the same period. (See also: Buy Herbalife Now That Ackman’s Out: Citi Research.)

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.