Activist investing has long been a part of the free market in America, and in many respects, is great for the market. It pushes companies to improve management and their business practices. It also increases shareholder value. Activist investors often have a major hand in strengthening and protecting the companies they target.
However, there are some among this group that take their tactics too far. These activist investors instead attack healthy companies using destructive campaigns based on lies and intimidation. Bill Ackman is one such investor, and he has been on a crusade to crush Herbalife, a nutrition and weight management company.
Initially, Ackman proposed that Herbalife would collapse. He launched a public relations campaign that insinuated Herbalife used unsustainable and unethical practices. His goal was to shake investor confidence.
But investors like Bill Stiritz and Carl Icahn looked closely at Ackman’s research and found a different conclusion. These two investors would go on to become major shareholders in the company.
The action of these two investors did nothing to deter Ackman, who then claimed that poor earnings would cause Herbalife to collapse. But the company only exceeded earnings expectations, and its stock is trading higher than when Ackman started his attacks.
While Ackman has spent millions of dollars in an attempt to win this “epic battle,” his self-serving intentions have won him precious little. Recently, Fortune magazine conducted a thorough investigation of Herbalife and noted that the company has been “villainized.”
Dozens of publications are questioning Ackman’s behavior, some calling it “disturbing.”
As a result of his all-out crusade against Herbalife, the FBI and the United States Department of Justice have opened a criminal investigation. Experts are also questioning Ackman’s actions, and are asking Congress to investigate his methods of manipulating regulatory processes for the sake of financial gain.
Herbalife will ultimately prevail, but that doesn’t mean that Ackman has made it easy for them. And many investors are watching closely to see how this “game” pans out, many looking to replicate his model. However, activist investors such as Ackman fail to see the bigger picture: their actions can damage the lives and careers of everyday Americans.
Activist investing can be good for the market, but when things are taken too far and these investors are operating on a self-serving basis, the results can only be damaging and do nothing to improve the market, investors or the companies under fire.