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The Morning Brief: Ackman Promises Herbalife Takedown on Tuesday

Is this the beginning of the end for Herbalife? Bill Ackman thinks so. On Tuesday the founder of New York–based Pershing Square Capital Management is promising to expose a “massive fraud” at the multi-level marketer of nutrition supplements, which he asserts will be a “death blow” to the company. In a phone interview on Monday on CNBC, the hedge fund manager said he will make a presentation today at 10 a.m. that he deems the most important in his career. The Ackman show will take place one hour after Herbalife CEO Michael Johnson and CFO John DeSimone appear on CNBC. It is shaping up to be quite a day. As for Herbalife’s stock, it closed Monday at $54.02, down more than 11 percent, after dropping nearly 19 percent after Ackman spoke on CNBC. — In other news regarding a controversial Ackman investment, Valeant Pharmaceuticals International Monday issued a scathing press release announcing it has contacted Quebec and U.S. regulators about Allergan Inc.’s “apparent attempt to mislead investors and manipulate the market” for Valeant’s stock “by continuing to make false and misleading statements regarding Valeant’s business” even though Valeant has publicly corrected the information, the release said.

Valeant, which has teamed up with Ackman — a major shareholder of Allergan — to launch a hostile takeover of the Botox maker, said Allergan on Friday falsely claimed in a regulatory filing that Bausch + Lomb’s pharmaceutical sales were stagnant or declining. Valeant, which has owned Bausch + Lomb for 11 months, asserts that Bausch + Lomb’s global prescription drug business grew about 6 percent in the second quarter, while the U.S. prescription drug business in general grew 17 percent. “Valeant’s decision to contact the authorities also reflects concerns raised by several Canadian Valeant shareholders about comments made about Valeant by Allergan’s management during recent meetings with these investors in Canada,” Valeant further stated in the press release.

Meanwhile, on Monday, Allergan reported that net sales increased 15.9 percent in the second quarter compared with a year ago. It also announced a major restructuring which it promises will deliver annual pre-tax savings of $475 million in 2015, compared with previously announced 2015 expectations. It says the savings will come from “efficiencies and reductions in spending across the commercial organization, general and administrative functions, manufacturing and the research and development organization.” As part of the announcement, Allergan said it will cut its workforce by about 1,500 people, or 13 percent of its current global head count, and eliminate an additional 250 vacant positions. —

Stephen Weiss’s Short Hills Capital Partners rose 1.58 percent in June and gained 2 percent in the second quarter, its first three months of operation. The fund of funds, founded by CNBC commentator Weiss, said in a letter to investors obtained by Alpha that it captured 75 percent of the S&P 500 upside even though its net market exposure was roughly 47 percent. “The fund’s cash position was again a drag on performance in June, detracting 10 basis points, although significantly less than the negative 30 basis points impact in May,” Weiss states. “The lower cash level was the result of adding an eleventh manager to our portfolio on June 1.”

SHCM does not identify the names of the funds in the underlying portfolio, but it teases that its best performing fund in June gained 5.90 percent and is up 17.76 percent for the year even though its average net exposure is just 47 percent. “The portfolio manager is someone I worked with at Salomon Brothers in the mid-1990s and the seed investor is a friend of nearly 20 years,” Weiss states. “We added to our position on June 1 and again on July 1, highly confident that they will remain excellent stewards of our capital, our confidence buttressed by the investment team’s eight-year relationship and strong historic track record, including positive performance in 2008 at a prior fund.”

Short Hills said on June 1 it allocated capital to a catalyst driven long-short equity fund. As of July 1, it has 12 managers in its portfolio. As we reported in March, Weiss’s new fund invests with long-short equity managers who have very good track records and are currently closed to outside investors but are not too big or are not household names just yet. Weiss is said to be confident he will be able to invest with this group because he is well connected. He is also seeking up-and-coming stars with a few years of experience under their belts. He does not plan to provide seed capital, however. —

New York–based activist hedge fund firm Starboard Value boosted its stake in RealD Inc. to 7.9 percent from 6.3 percent. The investment is still not officially an activist one. In the initial 13D filing in May, Starboard simply stated that it bought the stock because it was “undervalued and represented an attractive investment opportunity.” It does not address the nature of the investment in the updated filing.

Hedge fund favorite Netflix reported second quarter earnings that just missed the consensus forecast, while revenue beat forecasts. In addition, the number of net subscribers rose by 1.69 million, bringing the total over 50 million. Investors initially liked these numbers in after-market trading, pushing up the stock by around 1 percent.

New York–based Advent Capital Management named Michael Kane as head of investor relations for alternative investments, working with hedge fund clients. The money management firm has $8.3 billion in assets under management, although hedge funds are just a part of the total.

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