Kyle Bass, the hedge fund manager behind Hayman Capital Management, is betting on J.C. Penney, the troubled American department store chain.

This is according to Bloomberg's Stephanie Ruhle.

Bass, who focuses on corporate turnarounds, has accumulated a long position in Penney over the past two weeks by buying the company’s secured loans, said the person, who asked not to be named because the information is private. He has also sold a type of insurance called credit-default swaps to other investors that pays off only if the Plano, Texas-based company defaults on its debts, an event he considers unlikely, said the person.

Penney has turned into a quite the hedge fund circus.

It all began when Pershing Square Capital's Bill Ackman made a big investment in the company, securing a seat on the board of directors, and bringing in Apple retail guru Ron Johnson as CEO.

However, as Johnson rolled out his new retail strategy, Penney's sales collapsed, and eventually Johnson was ousted.

Earlier this summer, Ackman pushed the board to speed up the CEO search in an ugly public battle.

But this only attracted the attention of other big fund managers like George Soros' fund, which backed the board.

This eventually led to Ackman resigning from the board himself.

Earlier this morning, J.C. Penney announced weaker-than-expected sales and wider-than-expected net losses in Q2.

The stock is up by around 5% in pre-market trading.

SEE ALSO: GOLDMAN: The 40 Cheapest Stocks In The Market

Join the conversation about this story »

J.C. Penney reported another horrific quarter of deteriorating sales and wide net losses.

The troubled department store chain is currently struggling to stop the exodus of its customers.

"Comparable store sales declined 11.9% in the quarter, and were negatively impacted by the Company`s failed prior merchandising and promotional strategies, which resulted in unusually high markdowns and clearance levels in the second quarter,"said management in its earnings announcement this morning.

They're referring to the "failed prior" work of former CEO Ron Johnson.

Back in 2011, hedge fund manager and JC Penney investor Bill Ackman recruited Johnson, who at the time was responsible for the wildly successful Apple Stores.

However, as Johnson rolled out his vision for JC Penney's stores, sales completely collapsed.

Eventually, Johnson was ousted and Ackman resigned from the board.

"In first paragraph, JC Penney takes shot at Ron Johnson...who is definitely reading the release,"tweeted retail guru Brian Sozzi.

For what it's worth, the stock is up by around 2% this morning.

SEE ALSO: GOLDMAN: The 40 Cheapest Stocks In The Market

Join the conversation about this story »

The worst thing to come out of JCPenney's long, rough slog of an earnings call this morning, is the confirmation that executives have no plans for what to do with the retailer when its core customers have all gone — and they'll be gone soon enough, because they're all Baby Boomers.

To review this morning's action — not even the power of rival hedge fund manager Kyle Bass revealing a long position in the company could stop the carnage of JCPenney dismal Q2 earnings report. The stock's subsequent nose dive proved the market isn't convinced that the company has the recipe for a turnaround, whether hedge fund Bill Ackman is meddling with the store or not.

But it was that meddling that JCP CEO Mike Ullman focused on from the beginning to the end of this morning's call. His argument was that Ackman and former CEO Ron Johnsons' plan for the future of the retailer disrupted its relationship with its core, brand loyal customers. This isn't anything new.

"The obvious question," said Ullman at the beginning of the call, "is what do we stand for?"

In Ullman's mind, the company stands for its past. He touted its return to brands like St. John's Bay and Arizona — brands customers love that Ackman and Johnson tried to replace with a hipper vibe. Under Ullman JCPenney is refilling its stocks of these brands.

"There's still that core Baby Boomer customer that will not change brands," said Brian Sozzi, CEO of Belus Capital Advisors. "They know their sizes, the way they fit and how they wash, and they don't want to drive to Kohl's."

This is the customer JCPenney is desperately trying to get back. They know what these people want, and they know how to deliver it as a store. But Baby Boomers won't be around forever, and if you look at the numbers, JCPenney isn't investing in that fact at all, and at this point it's clear that they don't plan to.

Look at it this way — Ullman admitted that capital expenditures of $439 million are high for this quarter, but that it was all to get the company back to where it used to be. After that he promised capex would decrease, and that the company was looking at total capex of $300 million for 2014.

To put that in perspective, as Brian Sozzi pointed out to Business Insider, for the past five years JCPenney has spent over $700 million on capex annually.

That means Ullman is running in place. He said that $300 million in capex would be spent on things like making sure the stores are up to snuff and bringing in more Sephoras.

Sephora is a relatively high end, boutique makeup store that the kids love. It is one of the few triumphs of the Ackman-Johnson era, and it's one of the few things that is working at JCPenney.

You would think that Ullman would be figuring out ways to do more of that, instead he's cutting the store's capex in half.

"Macy's meanwhile is remodeling their stores," said Sozzi. "They're putting in cool shops but the vendors are paying for it."

In short, retailers have to modernize, and there is a right way to do it, but JCPenney simply hasn't figured it out yet at all. They're living one day at a time.

Join the conversation about this story »

Today, during JCPenney's dismal Q2 earnings call, there was one ray of light, and it was all thanks to the most hated man in the JCPenney universe, hedge fund manager Bill Ackman.

If you're an Ackman hater, just bare with us here. The store reported a revenue miss with numbers coming in at  $2.66 billion when analysts expected $2.78 billion. The company also reported a big net loss of $2.06 per share, worse than $1.07 loss analysts expected.

But at least they've got Sephora — anyone listening to the call was reminded of that over and over again. The high-end makeup store that Ackman insisted on introducing to JCPenney during his extreme makeover of the retailer is the only thing CEO Mike Ullman and company could point to as a success.

See, while Sephora was introduced to JCPenney in 2006, its expanded presence really took center stage as part of  Ackman's plans for the store. JCPenney's current leadership has admitted as much before too. Back in June Ullman said that even though it was thought customers weren't "going to understand it. Now it’s the most profitable part of the store.” Ackman said he knew it would be back in June of 2012, when he was talking about his JCPenney stake at CNBC's Delivering Alpha Conference.

But none of this means Ullman wants to invest more in Sephora-like successes at JCPenney. How do we know this? Because his focus during the call was on regaining the Baby Boomer, bargain brand customers he lost — not on gaining new hip Sephora-type customers Ackman was trying to attract.

Those are the customers that are bringing energy into an otherwise tired business.

You can see the disconnect here. The little capex Ullman said JCPenney would spend in 2014 (around $300 million compared to the over annual $700 million its spent over the last 5 years) is going to be spent on getting more Sephoras (sounds good) and making sure the old customers are happy (sounds like more of the same).

So yes, Bill Ackman was right on this one. He just went about it the wrong way. As Brian Sozzi, CEO of Belus Capital Advisors pointed out, Macy's is modernizing — getting hipper and cooler the way Ackman wanted JCPenney to do it — but Macy's is doing this gradually.

And more importantly, Macy's is making the hip new vendors pay for it.

You win some, you lose some.

Join the conversation about this story »

Activist investor Bill Ackman continues to find himself in a deep losing position on his famous short of Herbalife, the maker of nutritional products and shakes, which Ackman argues are being sold via an illegal pyramid scheme.

Ackman famously bet against the company last year, but a number of high profile investors have taken the long side against him, and in the absence of any regulatory action against the company, Herbalife remains quite profitable. Hence the losing trade.

In a new letter to investors (which we found on Scribd) Ackman goes through what he says are signs that the company's fundamentals are deteriorating.

Among the signs: The reported suicide of a top Herbalife salesman.

Here's Ackman with the big picture on how this fits into Herbalife's business situation:

Business Fundamentals

The Company continues to suffer the departure of top distributors. In early January, a long-time President‟s Team member, Anthony Powell, left for a competing multi-level marketer (MLM) called Vemma that markets "science-based‟ energy drinks to college students and young adults. On June 22nd, the New York Post reported that one of Herbalife's top distributors, Shawn Dahl, a so-called Chairman‟s Club member, had left the Company to pursue an alternative MLM opportunity called Nutrie, also selling weight-loss and "health related‟ drinks.

Dahl‟s departure is particularly notable given that, as recently as April 30th on the first quarter earnings call, Herbalife management claimed that there was no merit to the rumors that certain Chairman‟s Club members might be planning their departure, asserting that “our Chairman's Club members are committed to the business, committed to working with their organizations [and committed to a] stronger Herbalife.” Last week, John Peterson, one of the top few distributors in the Herbalife system – a so-called Founders Circle member who became a distributor in 1983 – reportedly committed suicide.

The stock declined 4.1% on the news potentially because of the impact on other distributors' confidence from his death and what it may suggest about top distributor business prospects going forward. In 2000, Herbalife nearly collapsed when the Company‟s founder Mark Hughes died from an overdose of anti-depressants and alcohol. The Company was then sold to private equity, and new management was installed to save the business.

The Company‟s U.S. web page listing its Chairman's Club members has been down for several months – for "maintenance,‟ according to Herbalife;s President Des Walsh – raising questions as to whether there may be further changes in the Company‟s top distributor ranks. Despite Herbalife‟s above-expectations earnings per share growth this quarter, a careful analysis of Herbalife's second quarter financials suggests that business fundamentals are beginning to deteriorate, as operating earnings, an important measure of the Company's core economic performance, showed only a 3% increase, a dramatic decline in growth from previous quarters. We believe that Herbalife‟s business fundamentals have just begun to be negatively impacted by top distributor departures and various distributor rule changes.

Of course, ultimately Ackman's goal with Herbalife is for regulators to come in and shut it down, and he says progress is being made on that front, though he can't get into specifics:

Over the past eight months, we have made material progress in attracting Federal, State and international regulatory interest in Herbalife. We are not at liberty to disclose the nature of these developments, but we believe that the probability of timely aggressive regulatory intervention has increased materially. Furthermore, we have learned of serious product quality issues from former Herbalife employees, information that is in the process of being provided to regulators. Based on what we have learned from these whistleblowers and other sources, we believe that serious product quality and safety issues continue to exist at the Company.

SEE ALSO: Top Herbalife seller dead in apparent suicide

Join the conversation about this story »

Bill Ackman has been getting a lot of heat lately for a couple of reasons.

For one thing, he's had some major losing bets (Herbalife and JCPenney) and they've been very high-profile.

Furthermore, in the case of JCPenney, he's been accused of ruining the company (a sort of valid charge, since he took a big stake and urged the board to go in a disastrous direction with the hiring of Apple's retail chief as CEO) and thus destroying jobs. Starbucks CEO Howard Schultz has been particularly tough on Ackman in public.

So to anyone out there who would accuse Bill Ackman of being a job and company destroyer, the investor has a chart for you.

In his latest letter to investors, he produces a complete table of his activist investments.

Part of the purpose of this table is to show that he's had several winning bets so far., and that Herbalife and JCPenney are outliers.

But note the existence of the far-right column, which shows the price of many of these companies today (even the ones in which he's no longer involved). The point there (as you can see with stocks like Wendy's, Fortune, and McDonald's) is that several of the companies he's been involved in, are even higher today, suggesting his activism does not put them on some short term path that's ultimately destructive.

SEE ALSO: Bill Ackman on the suicide of a top Herbalife salesman

Join the conversation about this story »

(Reuters) - Hedge fund manager William Ackman, the biggest shareholder in J.C. Penney Co Inc, said on Monday that he sold his entire stake after his campaign to overhaul the retailer failed.

Ackman's Pershing Square Capital Management sold 39.1 million shares, which amounted to 18 percent of the company, to Citigroup Inc, which is now offering the shares to other investors, the company and the $11 billion hedge fund said in separate announcements.

News that Ackman, who stepped off the board two weeks ago amid a growing rift over corporate strategy, dumped his entire stake pushed Penney's shares down 2.6 percent to $13 in after-hours trading.

The sale marks the end to Ackman's three-year campaign to breathe new life into thePlano, Texas-based retailer. He recruited a new chief executive to upgrade merchandise, streamline pricing and make stores more attractive to shoppers.

But store sales fell 25 percent in the last fiscal year, and the company's share price has dropped 32 percent since January.

For Ackman's hedge fund, which had boasted average annual returns of 20 percent over the last decade, the Penney investment weighed on performance, prompting some institutional investors to seek meetings with the manager so he could clarify his plans.

Ackman has lost hundreds of millions of dollars on his bet since first buying the shares when they traded at $20.01.

Last week, Ackman acknowledged that retail investing has not been his strong suit and categorized the J.C. Penney investment as one of his fund's three "failures" along with failed bets on Borders Group and Target Corp.

In order to get out quickly, Ackman relied on Citigroup to buy the entire stake in a so-called "block trade" and to then sell it to other investors. Currently hedge fund managers including George Soros and Richard Perry already have large stakes in J.C. Penney. It was unclear who might be buying the stake that Ackman's funds sold.

"Ackman bought his stake in order to influence the board to make big changes, not as a passive investment. Now it makes no sense to hold the position. It's time to move on to another company," said Erik Gordon, a law and business professor at the University of Michigan.

The 47-year-old billionaire is leaving three years after he built his position and then wooed Ron Johnson to join J.C. Penney from Apple Inc and overhaul the company. With his vision to upgrade merchandise, streamline pricing and bring back shoppers in tatters, Johnson was forced out in April.

Ackman's fund has lost hundreds of millions of dollars on the investment and the billionaire is making such a swift and complete exit because of a disagreement with the Penney board over strategy, a person familiar with his thinking said.

After Johnson was forced out, the company brought back Myron Ullman, the former CEO, with whom Ackman had disagreements.

Last week, Penney adopted a one-year "poison pill" to prevent any coercive takeover attempts by limiting a single investor's stake to 10 percent. Analysts widely interpreted the policy as a move by Penney to avoid another distracting fight with an activist at a time it is trying to win back shoppers after sales fell hard last year and are continuing to fall this year.

(Reporting by Svea Herbst-Bayliss in Boston and additional reporting by Phil Wahba in New York; Editing by Gary Hill, Matthew Lewis and Lisa Shumaker)

Join the conversation about this story »

Bond god Jeffrey Gundlach said on CNBC's "Halftime Report" with Scott Wapner that he wouldn't announce any short positions because it invites your rivals to bet against you. 

"I've learned from watching CNBC that announcing your shorts isn't the best idea because it sometimes invites competition," Gundlach, who runs DoubleLine Capital, said. 

It's pretty clear that he's talking about Pershing Square Capital Management's founder Bill Ackman here.

Back in December, Ackman publicly declared that he's shorting $1 billion worth of Herbalife, a multi-level marketing firm that sells nutrition products.

As part of his thesis, Ackman said believes Herbalife is a "pyramid scheme" that targets lower income people, particularly those from the Hispanic population. Ackman thinks that regulators, particularly the FTC, will be persuaded to investigate and shut down Herbalife.

Some of Ackman's competitors seized this as an opportunity to bet against him. 

Daniel Loeb of Third Point LLC, who used to be Ackman's friend, snapped up a sizeable position calling Ackman's thesis "preposterous." He later exited that position for a nice profit. 

Then, Ackman's arch nemesis Carl Icahn amassed a huge position.  He said that he thinks Ackman will be the victim of the "mother of all short squeezes." 

Since revealing his short, Herbalife's shares have rallied more than 43%. 

Still, Gundlach noted on CNBC that Herbalife's stock chart right now is "an invitation of a short." 

Join the conversation about this story »

BOSTON/NEW YORK (Reuters) - In the battle of investors who've made opposite bets on the shares of Herbalife <HLF.N>, both sides - including firms led by billionaires Bill Ackman and George Soros - have consulted a New Jersey college professor and studied his research.

For decades, William Keep, dean of the School of Business at the College of New Jersey, has pursued a relatively obscure marketing specialty known as multilevel marketing businesses, or MLMs. But as a new go-to adviser for some of Wall Street's biggest players, Keep has been suddenly thrust into the spotlight.

In December, Ackman placed a $1 billion short bet against Herbalife, citing the professor's research. Since then, Soros bought a large block of the company's shares around the time his firm was seeking out Keep's research and personal insights.

Through it all, Keep insists he has remained neutral to the investment implications of his studies.

"As my agenda has to do with MLMs and pyramid schemes, this sideshow is a distraction," he said of the attention he's received from investors and the media.

Multilevel marketers pay their sales force not only for the products they sell but also for recruiting other sales people. A pyramid scheme occurs where a company's sales team earns more for finding new distributors than they get for selling the product.

SHUNS INVESTMENT ADVICE

Ackman cited a paper co-authored by Keep in his December presentation when he lambasted Herbalife's business model. Months later, Ackman called Keep and spoke to him on the phone, though it is not clear what the two discussed.

Herbalife has repeatedly rejected Ackman's characterization of the company as a pyramid scheme that will eventually go bust.

Keep told Reuters in an interview that he has not voiced an opinion one way or another on whether Herbalife is a pyramid scheme. He makes clear to investors he isn't giving them investment advice.

Keep said that in his discussions with investments managers he never gets an indication of how they will react to his research.

"Once I leave the room, they could say, 'this is silly'. I don't know what kind of investment decisions they will make."

But investors still seek him out. Keep has been invited as a guest speaker at several hedge fund events and even visited the offices of Soros' family office.

During the summer, Keep met with some of Soros's investment staff, including portfolio manager Paul Sohn, to give them a tutorial on his research. Keep said Soros's investment team wanted to know how he thinks the epic battle over Herbalife will play out.

Keep declined to tell Reuters what he specifically told the Soros team, but said they had one burning question: Are regulators going to take action against Herbalife - something Ackman has been counting on in betting the company's shares will crash.

He also declined to handicap the outcome of any potential regulatory investigation, saying only that it would take a long time and cost a lot of money.

Keep visited Soros in June and again in July. Regulatory filings show Soros Fund Management purchased 5 million shares of Herbalife in the second quarter, becoming the latest high-profile investor to line up against Ackman and his Pershing Square Capital Management fund.

Another manager investing for Soros, East Side Capital, had a long position on Herbalife long before Ackman made his December presentation and still ranks as Herbalife's seventh-largest investor.

SOUGHT-OUT SPECIALIST

Besides meeting with the Soros team, Keep said he also spoke at a luncheon sponsored by research firm DeMatteo Monness for its hedge fund clients and at an event sponsored by research firm Hedgeye in recent months.

Keep has often been called as an expert witness when the government, including the Federal Trade Commission, has investigated pyramid schemes. And because of his specialist knowledge, Keep has frequently been featured in the media. Even as he was preparing for a new school semester, he said, he has been swamped by calls from reporters.

For months, the battle of the future of Herbalife has fascinated Wall Street, given the number of high-profile investors lining up to bet against Ackman.

Ackman's most notable and outspoken critic has been Carl Icahn, Herbalife's biggest shareholder, who got into the stock shortly after Ackman unveiled his big short positions.

So far, Ackman and his $11 billion Pershing Square have been losers in this contest of Wall Street billionaires, with Herbalife shares rising 83 percent this year. Pershing Square has incurred at least $300 million in paper losses on its investment.

(Reporting By Svea Herbst-Bayliss and Jennifer Ablan; Editing by Matthew Goldstein and Ken Wills)

Join the conversation about this story »

William Stiritz is now the largest individual shareholder in Herbalife.

The 77-year-old investor disclosed in a 13G regulatory filing with the SEC today that he personally owns 5,382,362 shares, or a 5.22% stake, according to data compiled by Bloomberg.

The second biggest individual shareholder is Herbalife's CEO, Michael Johnson.  Johnson owns over a million shares. 

Stiritz's Herbalife stake is worth about $322 million or so.  That a huge stake for an individual.  

It's unclear what his personal networth is exactly.  We couldn't find any record of Stiritz on any of the billionaire's lists. [hat tip: @TheSkeptic21]

Stiritz is currently the CEO and chairman of food company Post Holdings.  He's also Post's largest individual shareholder with a 1.13% stake.  He owns approximately 369,662 shares, Bloomberg data shows.  That would make his Post stake worth just over $15 million. 

He now owns a bigger Herbalife stake than his Post stake. 

Herbalife is a multi-level marketing firm that sells nutrition products such as weight loss shakes and vitamins. The company is at the center of a huge hedge fund battle.  

Back in December, Bill Ackman, who runs Pershing Square Capital, disclosed in a 300-plus slide presentation that he's short $1 billion worth of Herbalife stock.  His thesis is that he believes the company is a "pyramid scheme" that targets lower income people, particularly from the Hispanic population. 

Ackman thinks that regulators, particularly the Federal Trade Commission, will be persuaded to investigate the company and shut it down. 

Not everyone agrees, though. 

Ackman's former friend Daniel Loeb of Third Point amassed an 8.2% stake in Herbalife shortly after Ackman's presentation.  He exited that position for a profit. 

Long-time rival of Ackman's, billionaire investor Carl Icahn, stepped in and bought a massive stake.  Icahn believes Ackman will be the victim of the "mother of all short squeezes."

Most recently, George Soros' family office hedge fund snapped up a large 4.89% stake, or 5,039,175 shares.  

Join the conversation about this story »

Alma Morales Riojas, the president of MANA, a national Latina advocacy organization, wrote a strongly worded letter to the Federal Trade Commission asking them to investigate Herbalife. (via FT Alphaville)

In the MANA letter, Riojas says that Herbalife uses a "deceptive claim" by making "unattainable promises of wealth and success."

What's more is she writes that she has witnessed this firsthand. 

"On a personal level, I believe they prey on our most vulnerable, and I have seen some of my own friends in my home state of Texas fall victim to these terrible practices."

There's no mention of "pyramid scheme" in the letter, though. 

Herbalife, a multi-level marketing firm that sells nutrition products, is the company that has been at the center of a heated hedge fund war.

Bill Ackman, who runs Pershing Square Capital, publicly declared in December that he's shorting $1 billion worth of the stock because he believes Herbalife is a "pyramid scheme" that targets lower income people, especially from the Hispanic population.

A number of hedge fund managers, including his arch nemesis Carl Icahn, have piled on by going massively long the stock. Icahn thinks Ackman will be the victim of the "mother of all short squeezes." 

Still, Ackman has stood by his thesis.  He thinks regulators, particularly the FTC, will be persuaded to investigate the company. 

Here's the letter (emphasis ours): 

Dear Chairwoman Ramirez,

The principle mission of MANA – A Latina Organization, is to support and empower Latinas through leadership development, community service and advocacy. MANA’s membership is wide ranging from young up- and- coming middle school Latinas who want to make a difference to 70 year old- plus “abuelitas” who have advocated for their communities their whole lives.Together, we have proudly served the Latino community for almost forty years, providing and expanding access to educational, health, and leadership opportunities.

As our economy continues to experience steady but slow progress, we understand first hand our community’s desire to seek out reliable, alternative ways to supplement their incomes. Furthermore, as a woman of color and the past national executive director of Federally Employed Women, Inc., a nonprofit working to improve the status of women employed by the Federal government, I am well aware of the punishing wage gap that many Latinas in this country face. These wage gaps can cost Latinas critical income annually that could be better used to help meet their families’ daily fundamental needs. This is why I write today, to urge the Commission to conduct a full investigation of the multi-level marketing company Herbalife and their deceptive business practices and abuses.

Herbalife is very popular among Latinas throughout the U.S. and throughout Latin America, and has historically won distributors over with the guarantee of an exciting business opportunity, by making unattainable promises of wealth and success. Herbalife claims it is both a product company and a business opportunity, but clearly this is a deceptive claim since the majority of Herbalife distributors make little or no income. According to Herbalife’s own 2012 data, 88 percent of their participants received no payments from the company at all. I firmly believe this company benefits mainly from its far reaching network of hierarchically organized independent sales people, who recruit others and in turn make a profit off of them. On a personal level, I believe they prey on our most vulnerable, and I have seen some of my own friends in my home state of Texas fall victim to these terrible practices.

As a community, Latinas are always looking for ways to advance, get ahead, support our families and achieve our own piece of the American dream. There have been far too many troubling claims about Herbalife this year and with more conflicting issues continuing to come up, we strongly encourage the Commission to carry out a full investigation and thoroughly examine this company’s practices as soon as possible. An investigation like this will serve an educational tool for many of our organization’s members and their families who may have fallen prey to these schemes in the past.

Thank you for your prompt attention to this matter.

Sincerely,

Alma Morales Riojas
President and CEO
MANA, A National Latina Organization

Join the conversation about this story »

Thirty-seven year-old activist investor Richard Trainor McGuire III (a.k.a. "Mick") runs "one of the country's hottest hedge funds", according to Reuters. 

McGuire, who has been called a Bill Ackman "protégé", is the founder and CEO of $2.2 billion Marcato Capital Management.

So far this year, his fund is up 17.1% this year, reports Reuters Svea Herbst-Bayliss.

McGuire been in the financial news lately because he's one of the big activist shareholders involved in Sotheby's. Daniel Loeb and Nelson Peltz are the other big name fund managers who are top shareholders in the auction house. 

Ackman, who is considered to be somewhat of a matchmaker, even called McGuire a "handsome and successful guy" at a conference earlier this year.    

"Actually, really for the group, so Mick runs one of the few hedge funds that's out in San Francisco and he tells me the only downside is apparently there are no women in San Francisco, so I thought I would make a little bit of an advertisement while he no longer needs to raise a lot of capital like some of the other start-up managers there are other needs that need to be fulfilled. And he's quite a handsome and successful guy. I wanted to point that out," Ackman told the audience at the Harbor Investment Conference in February after McGuire finished up his presentation. 

At such a young age, McGuire has quite a lot of accomplishments under his belt.

McGuire's Marcato Capital was named the U.S. equity hedge fund of the year by Absolute Return Alpha. Institutional Investor named him the emerging fund manager of the year. 

McGuire started his hedge fund in 2010 with financial backing from Blackstone. He previously worked as a partner at Pershing Square.  He was with Pershing from 2005 until January 2009.  Be fore that, he held various roles at JH Whitney & Co. and Stonington Partners. 

Marcato also has experience in the corporate boardroom.  When he was only 32, he served as a director for Borders.  Eventually, he became the youngest ever non-executive chairman of the bookseller.  

McGuire is a native of Columbia, Missouri.  His father Rick is the head track & field coach for University of Missouri. His mother Jane is a retired Spanish and French high school teacher. His sister Wendy is a lawyer. 

He graduated with a degree in economics from Princeton.  He holds an MBA from Harvard Business School. 

Watch Below: Miss USA Explains How Working As An Accountant Prepared Her For Beauty Pageants

Join the conversation about this story »

Herbalife's stocking is making new 52-week highs today.

The stock was last trading up more than 3% at about $73 a share. The stock has been trading in a range of $70.67 to $73.71 during today's session. 

D.A. Davidson analyst Tim Ramey thinks Herbalife will announce a big leveraged buyback after its audited financials are released in the next couple of weeks. 

Bill Ackman of Pershing Square Capital probably hasn't liked seeing the stock go up against him day after day. 

Ackman, who runs Pershing Square Capital, said last December that he's short $1 billion worth of Herbalife stock.  He believes Herbalife is a "pyramid scheme" that targets lower income individuals, especially from the Hispanic population. 

The stock price has rocketed more than 66% since Ackman confirmed his short late last year.  

Ackman's long-time rival Carl Icahn and a number of other fund managers have publicly disagreed with his short thesis and have gone long the stock.

Right after Ackman gave his presentation, Icahn amassed a 16% stake in the company. He believes Ackman will be the victim of the "mother of all short squeezes."  

What's more is Ackman told CNBC at the end of July that he had not covered a single share of Herbalife. 

Join the conversation about this story »

Hedge fund billionaire Bill Ackman, the CEO of $12 billion Pershing Square Capital Management, is funding a scholarship program aimed at helping social entrepreneurs receive an MBA from the University of Oxford. 

The Pershing Square Foundation, a charitable organization Ackman co-founded with his wife Karen, announced the launch of the Oxford Pershing Square Graduate Scholars Program last night with a gift of $6.6 million to endow the scholarships.  

The purpose of the scholarship program is to bring on young leaders and innovators who want to "address world-scale challenges for the benefit of society."

Social entrepreneurs are people who want to find solutions for social problems.  For example, one of the students is helping shrimp farmers in Southeast Asia use low cost instrumentation to measure water salinity. These aren't MBA students who want to work for hedge funds or investment banks.   

Each year, five students will receive full rides for Oxford's 1+1 program, which allows students to do the one-year Oxford MBA paired with one of many of the university's other master's programs. 

The scholarship program is open to students globally. The first group of scholars will start in the fall of 2014.

What makes this program such an obvious choice is that it gives students "depth and breadth," Oxford's Saïd Business School Dean Peter Tufano explained to Business Insider.

"It takes both domain expertise and management skills to solve problems. Simply having a broad set of skills without knowing the facts about the problem it's really hard to, for example, address issues of water policy, address environmental issues, fix education. All of these things require that you know something about the underlying phenomenon. So what we've created with our 1+1 program is an ability to first get depth and then get breadth of management skills," Tufano said.

Tufano was Ackman's finance professor at Harvard Business School, so we had to ask him what he was like as a student.

"I think he's like the person that you see now— very smart, determined, asked lots of questions," he said.  He couldn't remember where Ackman sat in the classroom, but that didn't matter. You knew he was there. 

We caught up with Ackman at a reception at the Park Avenue Armory last night in Manhattan's Upper East Side to celebrate the new partnership between the Saïd Business School and The Pershing Square Foundation.

He recalled his school days for us.

"I remember it well. I can say I learned a lot. So pay it back."  

The activist/long term value investor, who usually focuses on early and high school education, told us why he's so excited about this scholarship.

"Higher education has plenty of support. I'm more concerned with early education, frankly, and high school education. This is sort of a unique thing this is supporting people who want to be social entrepreneurs and giving them the opportunity to get a business school education and that's why I think it's important," Ackman told us in an interview.

Despite increasing costs with higher education, Ackman, who graduated from Harvard and Harvard Business School, still believes it's a viable investment for most Americans. 

"Yes, but I would say the the following: The problem with a business school degree is that it's very expensive and you have to take, in order to pay back your loans, a very high paying job, which pushes people to Wall Street and consulting and those kind of jobs, not that there's anything wrong with that. But the talented entrepreneur that wants to save the world it's hard, save-the-world jobs tend not to pay well. So if you're burdened with student loans absent from having the resources from your family it's hard for you to pursue a non-for-profit initiative." 

During his address to the crowd, he explained just how fortunate he was having his parents help pay for his higher level education.

"I was one of the people fortunate enough who had parents pay for my business school education. I went into business. Had I been interested in pursuing something social focused on finding water...for people without water in Africa or if I wanted to change the health care system, it would be hard to pay back my student loans with the entry level opportunities."

Also present at the reception last night was Dr. Paul Farmer, the co-founder of Partners in Health, private equity billionaire Stephen Schwarzman, Paul Bernstein, the CEO of the Pershing Square Foundation and Ackman's family, including his wife, Karen, teenage daughter, sister and parents, Larry and Ronnie.

Join the conversation about this story »

We caught up with hedge fund manager Bill Ackman at an event in the Upper East Side last night for the Oxford Pershing Square Graduate Scholars Programme launch. 

For Ackman, a large part of his philanthropic activities focus on education, primarily early and high school education. 

So we asked the activist investor if he thinks students today are receiving a sufficient knowledge on investing.  

"You know it's interesting. I've actually always thought that high school education should include a program on everything on how to get a mortgage, how to manage your personal finances, credit cards, student loans.  When you think about the subprime crisis, a lot of that was caused by people who were fairly unsophisticated about finance in many cases not understanding the ramifications of what an adjustable mortgage is and what Libor is and all the factors are..." he explained.

Maybe he should teach.

Join the conversation about this story »

Bill Ackman is back. 

The billionaire activist investor's latest target Air Products said this morning that it's looking for a new CEO.

Three new independent directors are also joining the industrial gas product maker's board.  Ackman's Pershing Square Capital has already agreed to vote in favor of them. 

Air Products is Ackman's largest investment ever. He owns a 9.8% stake worth about $2.2 billion. 

This stock was last trading up more than 1.7% in the pre-market.

This summer, Ackman had unsuccessfully pushed JCPenney to replace its interim CEO Mike Ullman, who took over the helm again after Ron Johnson failed to turn around the struggling retailer. 

After a very public fight, Ackman stepped down from the retailer's board and dumped his 39.1 million stake.  

Anyway, here's the Air Products press release: 

LEHIGH VALLEY, Pa., Sept. 26, 2013 /PRNewswire/ -- Air Products (NYSE: APD) today announced that it will add three new independent directors to its Board of Directors and will commence a search to identify a successor to chairman and CEO John E. McGlade, who will retire in 2014.  The actions reflect the Board's ongoing focus on best-in-class corporate governance and leadership succession planning to ensure the Air Products Board and management has the appropriate experience and expertise to deliver long-term value for Air Products shareholders.

The CEO search will commence promptly, led by a newly formed search committee of the Board with the assistance of a leading executive search firm.  The search will be conducted in a manner consistent with recruiting an accomplished executive with the skills and experience necessary to successfully lead a large, global industrial gas company.  McGlade will continue to serve as chairman and CEO during the search process and then as chairman for an agreed-upon transition period in 2014.  The incoming CEO will also join the Board as a director.

McGlade said, "Air Products is a long-cycle business, and we have taken significant actions in recent years to position the company for accelerated earnings growth in an economic recovery.  As I approach age 60 and the Board plans for my retirement, the actions our Board is announcing today will ensure an orderly leadership transition and a company that is well positioned to deliver long-term shareholder value.  We have had a constructive dialogue with Pershing Square, our largest shareholder, and are pleased they are supportive of the actions our Board is announcing today for the benefit of all Air Products shareholders."

Bill Ackman, CEO of Pershing Square, said, "We invested in Air Products because it is a great business in an industry with excellent long-term prospects.  In recent weeks, we have been delighted to get to know John and the rest of the board working with them on their mission of continuous improvement and long-term shareholder value creation.  We look forward to a successful long-term partnership."

The three new independent directors will join the Board immediately.  Two of the new independent directors, Edward Monserand Matthew Paull, will stand for election at the Air Products 2014 Annual Meeting.  Pershing Square has agreed to vote in favor of the company's slate of nominees recommended by the Board at the 2014 Annual Meeting.  The third independent director,Seifi Ghasemi, will stand for election at the 2015 Annual Meeting.  With the addition of the three new directors, three current Air Products directors will retire prior to the 2014 Annual Meeting in order to maintain an optimal board size.  Biographies of the new independent directors are below:

Seifi Ghasemi, 69

Mr. Ghasemi is currently chairman and chief executive officer of Rockwood Holdings, Inc. (NYSE: ROC), a global leader of inorganic specialty chemicals and advanced materials businesses.  Prior to joining Rockwood in 2001, he was with GKN plc, an $11 billion (revenues) global industrial company, where he served in various positions including chairman and CEO of GKN Sinter Metals and as a director of the Main Board of GKN plc.  From 1979 to 1997, he was with The BOC Group, a global industrial gas company now part of Linde AG, where he held a variety of senior positions including president of BOC Gases, Americas and, from 1996-1997, served as a member of the BOC Group Board of Directors.  He currently serves on the Board of Directors of EnerSys, the largest industrial battery manufacturer in the world, and as chairman of the Supervisory Board of CeramTec GmbH, a manufacturer and developer of advanced ceramic components.  He holds an M.S. in Mechanical Engineering from Stanford University and received his undergraduate degree from Abadan Institute of Technology.

Edward L. Monser, 63

Mr. Monser is currently president and chief operating officer of Emerson Electric Co. (NYSE: EMR), a $24 billion (revenues) global industrial controls products company.  He is responsible for Emerson's day-to-day business operations and leads the company's profit review and other strategic planning processes.  He also directs the company's demand-driven supply chain, lean manufacturing, and international business activities, which include business development and investments in emerging markets.  Monser has more than 30 years of experience in senior operational positions at Emerson and has played key roles in globalizing the company, having held increasingly senior positions at the company, including chief operating officer (2001-2010), president of its Rosemount Inc. subsidiary (1996-2001), and various operations, new product development, engineering and technology positions.  He is a member of the Economic Development Board for China's Guangdong Province and a past board member and past Vice Chairman of the U.S.-China Business Council.  He holds a B.S. in Electrical Engineering from theIllinois Institute of Technology and a B.A. in Education from Eastern Michigan University.

Matthew Paull, 62

Mr. Paull was senior executive vice president and chief financial officer of McDonald's Corporation from 2001 until he retired from that position in 2008.  Prior to joining McDonald's in 1993, he was a partner at Ernst & Young where he managed a variety of financial practices during his 18-year career and consulted with many leading multinational corporations.  He was until recently the lead independent director of Best Buy Co. and chairman of the Board's Finance Committee.  Mr. Paull currently serves as a director of KapStone Paper and Packaging Corporation and WMS Industries Inc. and as a member of the Advisory Board of Pershing Square Capital Management, L.P.  He also served as an advisory council member for the Federal Reserve Bank of Chicago.  He holds a Master's degree in Accounting and a B.A. degree from the University of Illinois.

 About Air Product

Air Products (NYSE: APD) provides atmospheric, process and specialty gases; performance materials; equipment; and technology.  For over 70 years, the Company has enabled customers to become more productive, energy efficient and sustainable.  More than 20,000 employees in over 50 countries supply innovative solutions to the energy, environment and emerging markets.  These include semiconductor materials, refinery hydrogen, coal gasification, natural gas liquefaction, and advanced coatings and adhesives.  In fiscal 2012, Air Products had sales approaching $10 billion.  For more information, visitwww.airproducts.com.

Join the conversation about this story »

Before they were masters of the universe, the biggest names on Wall Street were once just regular high school kids.  

They were members of sports and academic teams.  They were on the homecoming court.  They entered essay contests, edited the school's literary magazine and starred in musicals.

We combed through a number of high school yearbooks and have compiled photos and accomplishments of some of the Street's most recognizable names. Some of them still look the same, while others have drastically improved their hairdos. 

We even found Goldman's CEO Lloyd Blankfein in his swim trunks.  Enjoy! 

Warren Buffett said he wanted to be a stock broker in the 1947 Woodrow Wilson High School (Washington, D.C.) yearbook.

Goldman CEO Lloyd Blankfein was the valedictorian of Thomas Jefferson High School (Brooklyn, New York) in 1971. He was a city champion in the 400 meter freestyle. We think we've identified a young Blankfein in his swim trunks below.

Here's Blankfein's senior portrait. He ended up going to Harvard, not Columbia.

Activist investor Bill Ackman has swapped more than 40% of his $1 billion Herbalife equity short for put options, the New York Post's Michelle Celarier reports citing Pershing Square's latest investor letter.

From the letter [via the NYPost]:

"In order to mitigate the risk of further mark-to-market losses on Herbalife, in recent weeks we have restructured the position by reducing our short equity position by more than 40% and replacing it with long-term derivatives, principally over the counter put options. The restructuring of the position preserves our opportunity for profit--if the Company fails within a reasonable time frame we will make a similar profit as if we had maintained the entire initial short position-while mitigating the risk for further substantial mark-to-market losses-because our exposure on the put options is limited to the total premium paid. In restructuring the position, we have also reduced the amount of capital consumed by the investment from 16% to 12% of our funds."

So essentially what he did here was recognize losses and cover $400 million worth of Herbalife stock and then buy puts.

What he has also done by buying puts, though, is he has freed up capital and limited the money he would lose from the stock going up further.  He will profit if the stock declines below his strike prices.  He will only lose a little bit per share if the stock stays at the same level or goes up.

So far, Ackman's Pershing Square Capital Management has lost an estimated $500 million on his short position, the Post estimates.

Back in December, Ackman publicly declared at a special Sohn Conference event that he was shorting 20 million shares, or $1 billion, worth of Herbalife stock with a price target of $0.

Ackman said he believes the California-based multi-level nutritional products seller is a "pyramid scheme" that targets lower income people, especially from the Hispanic population.  He believes that regulators, particularly the Federal Trade Commission, will be persuaded to investigate and shut the company down.

Since confirming his short position, Herbalife's stock has skyrocketed more than 71%.

He's still standing by that thesis in his latest letter, though.

"Since our presentation on Herbalife at the end of last year, we have not learned any facts that our inconsistent with our belief that the Company is a pyramid scheme that engages in unlawful and deceptive marketing practices," Ackman wrote in the letter, which was posted by the NYPost.

A number of hedge fund managers have disagreed with Ackman.  A few of them snapped up long positions after he gave his massive 342-slide presentation.

His long-time rival billionaire investor Carl Icahn holds the largest long position in the company.  Icahn has said that he believes Ackman will be the victim of the "mother of all short squeezes."

Icahn weighed in on Ackman's latest move last night. 

Icahn on Ackman $HLF cover and $500m profit: "happy I made the profit. I think Ackman's purchase is judicious one bec co. still undervalued"

— Scott Wapner (@ScottWapnerCNBC) October 3, 2013

Herbalife's stock was last trading higher in the pre-market.

Join the conversation about this story »

D.A. Davidson analyst Timothy Ramey, who covers Herbalife's stock, is out with a note today following Bill Ackman's repositioning on his $1 billion Herbalife short position in an effort to reduce risk. 

According to an investor letter released late last night, Ackman's Pershing Square swapped more than 40% of its equity short position in Herbalife for put options.

With those puts, Ackman will profit if the stock declines below his strike prices.  He will only lose a little bit per share if the stock stays at the same level or goes up.

Bottom line, though, Ackman has just changed the payout profile for this trade. 

But Ramey points out that one huge downside from Ackman's move is that he will run out of time and the puts will expire worthless for Pershing.  

He also thinks that the over-the-counter (OTC) desk that sold Ackman the puts is going to be "very lucky." 

From Ramey's note (emphasis ours): 

Pershing Square buys out-of-the-money puts. Pershing likely bought out-of the-money (e.g., $37.50 strike price, at half HLF’s current price) puts covering 10 million shares (100,000 puts if conventional 100 multiplier of listed puts) from a very lucky counterparty. We say lucky because it is highly likely that these puts will expire worthless and Pershing’s counterparty will get to pocket the price of the puts at a time when the implied volatility is at historically unprecedented levels.

Again, Ramey re-emphasizes this. 

This new bearish position seems at odds with Pershing Square’s goals. If it truly still believes the go-to-zero thesis, and Mr. Ackman writes in his letter that he does, then it makes no sense to put a time element into this trade. He now needs to be both right on the go-to-zero thesis and right on the timing. On one thing we do agree – Pershing Square has significantly reduced the risk of unlimited losses, but has increased the certainty of a total loss of the original $1 billion short position as the puts expire worthless. The counterparty to his trades indeed has a winning hand.

Herbalife's stock was last trading down more than 7%. 

Join the conversation about this story »

This weekend, Herbalife its Herbalife Latina Extravaganza event in Los Angeles.

It's a massive event hosted for the company's thousands of Latino distributors.  

On Friday, members League of United Latin American Citizens (LULAC), a leading latino organization, hosted a "press conference" outside the Attorney General's office in L.A.

LULAC members handed out copies of a “Dear Herbalife Distributor” letter warning distributors about the perils of the company. (We've included a copy of the letter below.)  

While LULAC members were distributing letters, Herbalife's CEO Michael Johnson came outside and began yelling at them, according to Reuters. 

The incident became very heated.  What's more is witnesses told Reuters that current Herbalife distributors also spat on the LULAC members.

Reuters Svea Herbst-Bayliss reports: 

Outside the convention center where Herbalife hosted its event the atmosphere became testy when some distributors spat at some of the community activists and when Herbalife CEO Michael Johnson arrived, several eye witnesses said.

"Johnson approached us and was very confrontational," said Randy Fox, a regional director for LULAC, adding "he told us 'You don't know the facts. We don't want to hear your lies. This is all lies. You should be ashamed of this." Herbalife spokesman James Golden declined to comment on the matter.

Herbalife, a multi-level marketing firm that sells nutritional shakes and supplements, is the company that hedge fund manager Bill Ackman is shorting.  Ackman, who runs Pershing Square, believes Herbalife is a "pyramid scheme" that targets lower income individuals, particularly from the Hispanic population. 

Ackman has said the U.S. will be better off when Herbalife is out of business. 

Herbalife's CEO told CNBC back in December that the "United States will be better off when Bill Ackman is gone."

So far, Ackman's short hasn't worked out in his favor.  Shares of the stock have skyrocketed.  A number of fund managers, including his rival Carl Icahn and George Soros, have gone long the stock. 

If anyone has video footage from this incident, feel free to send it to jlaroche@businessinsider.com. 

Here's the letter:

October 18, 2013

Dear Herbalife Independent Distributor:

This weekend you will hear unbelievable success stories about individuals who have gone from rags to riches by becoming Herbalife distributors. Unfortunately, if the stories seem too good to be true, it’s because the vast majority of Herbalife distributors experience something far different.

According to Herbalife’s Statement of Average Gross Compensation Paid by Herbalife to United States Distributors in 2012, 88% of Herbalife’s distributors earned no payments from Herbalife in 2012, and only 3.67% received more than $1,000 for the entire year.

As an Herbalife Independent Distributor you have the right to demand that the company make important changes to the way it operates to ensure that the work of many does not end up lining the pockets of the few. While you participate in training sessions over this weekend, we encourage you to suggest the following reforms to Herbalife officials so the company can truly realize its vision of changing people’s lives for the better:

1) Report the average net income of Herbalife distributors and stop featuring highly unlikely “rags to riches” success stories. The only way a potential distributor can tell if Herbalife is really a good “business opportunity,” worth pursuing is if the potential distributor knows what the average distributor makes for a given amount of work after subtracting their operating costs. Herbalife should publish this information to ensure that potential participants are not induced into becoming distributors with unrealistic expectations only to be disappointed when the expected profits fail to materialize.

2) Limit Herbalife’s down line compensation to three levels deep. This reform would limit compensation (including royalty overrides, production bonuses and other forms of multi-level income) for a distributor’s downline to the number of levels that a distributor can reasonably be expected to train and manage and reduce the incentive for distributors to engage in predatory or deceptive business practices that place a far greater emphasis on recruitment than on actually selling Herbalife products to retail customers.

3) Track and report Herbalife retail sales to new recruits and the general public. A fundamental practice of all legitimate consumer product companies is to track retail sales to consumers. While you as a distributor are required by Herbalife to keep track of all your retail sales, Herbalife’s policy is not to collect this data from you and not to report any data on retail sales to new recruits and the public. The FTC has clearly stated that robust retail sales to non-distributors are the key to separating legitimate multi-level marketing companies from pyramid schemes.

4) Don’t Exaggerate the Health Benefits of Herbalife Products. Herbalife claims that their products are healthy and nutritious; however, Herbalife’s 2013 product catalog has a disclaimer that the vast majority of their health claims have not been evaluated by the Food and Drug Administration nor are their products intended to diagnose, treat, cure, or prevent any disease. Health claims should not be made about any Herbalife product unless the claim has been proven to be true.

5) Require Nutrition Clubs to come into compliance with the law . Herbalife’s nutrition clubs are required to follow a bizarre set of rules that prohibit club owners from displaying the Herbalife logo on the outside of the store, posting prices for their products, having an open/closed sign and advertising. Clubs are required to cover their windows, sell only Herbalife products, destroy used containers, and keep products hidden until they are sold. These bizarre rules appear to be designed to bolster Herbalife’s contention that nutrition clubs are not retail stores, restaurants or food establishments when in fact that is exactly what they are because they are selling food at fixed retail locations. Herbalife distributors should demand that the company ensure its nutrition clubs are in compliance with local, state & federal health and business codes that apply to retail food outlets. Better yet the company should franchise the nutrition clubs as most other national brands have done when selling food at fixed retail locations. The “future of the company” shouldn’t depend on hiding from the law.

6) Stop targeting low-income Latinos. Between 60 to 80% of Herbalife’s 500,000 US distributors are Latino—4 to 5 times their representation in the US population. Close to 90% of these distributors will quit within a year and Herbalife will seek to replace them with another 300,000 to 400,000 Latino distributors to sustain their US profits.

If Herbalife’s executives refuse to implement the necessary reforms listed above, at the very least they should stop targeting the family-oriented and trusting Latino community with their deceptive business practices. No one community should have to bear the brunt of a company’s predatory business model.

Herbalife claims to do the right, honest and ethical thing. By insisting the company undertake the 6 reforms listed above, you will not only help Herbalife live up to its slogans, you will also help the company move to a financially stable business model for the long haul and address the long standing criticisms that have plagued the brand for decades.

Herbalife’s US business depends heavily on the Latino market. As Latino Herbalife distributors,it is time for you to take a leadership role in determining the direction of the company you represent and to bring the Latino values of honesty, integrity, fairness, and compassion to a company that sorely needs them.

Sincerely,

Join the conversation about this story »