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Icahn and Ackman Forge a Truce, Agree to Disagree over Herbalife

The activists make up at Delivering Alpha, but their history of antagonism runs too deep to think they will ever be bosom buddies.

It might have been one of the most awkward embraces in CNBC history, but activist investors Carl Icahn and William Ackman seemingly hugged away their differences on live TV at the Delivering Alpha conference held Wednesday in New York. The pair have been on different sides of the Herbalife struggle, with Ackman being a vocal short seller and critic of the dietary supplement company and Icahn among a handful of high-profile investors who have taken stakes and offered support. Last year their differences erupted in a notorious spat on CNBC, with Icahn accusing Ackman of being “the crybaby in the schoolyard.” The level of vitriol between the two made it seem unlikely they would ever occupy the same stage again.

Well, miracles happen. At Delivering Alpha they metaphorically kissed and made up, thawing just a bit after their long cold war.

Yet while Ackman and Icahn profess to share similar beliefs about the flaws of corporate America, shareholder rights and the necessity of standing up to management, it’s difficult to see them as best buddies. They are both too similar and too different from each other. Ackman is, as he has acknowledged, the son of a real estate developer who has had a more privileged upbringing than Icahn. Both can be stubborn, strong-willed and egocentric. Ackman, 48 years old to Icahn’s 78, is the more polished, but Icahn more than makes up for that in experience, shrewdness and his utter lack of self-regard in the pursuit of winning.

The bad blood between Ackman and Icahn goes back more then a decade. In 2003 Ackman approached Icahn about buying him out of Hallwood Realty. At the time, Ackman was in trouble. His firm then, Gotham Partners, was under investigation by the Securities and Exchange Commission (the investigation was later dropped), and he had been forced to close down. It was not clear that Ackman would have a future in finance. Icahn, who began taking activist positions in the late 1970s and formed Icahn Enterprises in 1987, agreed to buy Hallwood, a Dallas-based real estate investment trust, for $80 a share. The deal, however, came with a form of insurance, known as “schmuck’s insurance”—if, within three years, Icahn sold the company for a profit, the two would split the money.

In 2004 Icahn merged Hallwood Realty with HRPT Properties Trust for $137.9 a share. The deal led to an acrimonious legal dispute, with Icahn alleging that because Hallwood had been merged and not sold, the agreement was voided; the case didn’t conclude until 2011. The two ended up haggling over $4.5 million, the amount the famously penny-pinching Icahn owed Ackman in legal fees under the terms of the contract. By 2011 Ackman had started his new hedge fund firm, New York–based Pershing Square Capital Management, now with $13 billion under management, and was making a name for himself as an activist.

Then came Herbalife, the CNBC spat and Delivering Alpha. In the midst of an Icahn interview late in the day, Ackman suddenly appeared onstage — the conference’s “mystery guest.” Even Icahn looked surprised. The two were at pains to compliment each other, and Ackman admitted that out of the blue he had called Icahn a few weeks earlier. Ackman said that the détente began only after Icahn had praised him for another transaction, his active participation in Valeant Pharmaceuticals International’s hostile bid for Allergan. “Where we share a lot of commonality is the importance of the shareholders’ ability to have a voice in the way a business is being managed,” Ackman said of Icahn. “It’s almost crazy that we were at these loggerheads.”

Icahn agreed: “You are one of the few guys that really does speak out if you don’t like a guy” running a company. This is the kind of blunt outspokenness Icahn himself has always advocated and practiced.

Icahn continues to own a stake in Herbalife. In December 2012 Ackman disclosed a short position against the dietary supplement company, accusing it of operating a pyramid scheme. Herbalife struck back, and the battle has raged for more than 18 months, with the company gaining the support of powerful investors such Icahn, Third Point CEO Daniel Loeb and Moelis & Co.’s founder and CEO Ken Moelis, who spoke out in favor of his client earlier in the day at Delivering Alpha. Top holders in Herbalife as of March 31 include Icahn, Soros Fund Management and Perry Capital.

Today Icahn owns 17 percent of the outstanding shares. The share price has gone from $26 a share in December 2012, not long after Ackman announced his short, to $62 today. Ackman acknowledged at Delivering Alpha that he was unlikely to bring Icahn around to his way of thinking about Herbalife any time soon, saying “I would love to get Carl out of this stock.” That seems unlikely to happen any time soon. Ackman also offered to buy his shares. Icahn didn’t seem too eager. And so a new friendship begins. We’ll see how that goes.

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