Pershing Square's Bill Ackman, who has been engaged in a 5-year long feud with Herbalife, betting its stock price would tumble to zero, came one step closer to admitting defeat on Wednesday when he told CNBC that his hedge fund recently restructured its position in the nutrition and supplements maker. "We converted the short position into a put position," Ackman said in an interview with CNBC, adding that his firm's potential losses on Herbalife will now be capped at 3 percent of the firm's capital. "We can still lose money but the loss is capped."
But the best part of the interview was the following admission:
"We've been entirely right on our Herbalife investment in terms of the fundamentals of the business. We've been wrong on the share price. A big part of that is the fact that companies repurchase a huge amount of shares," Ackman said, confirming what we said back in 2012, namely that as a result of the company's ongoing preference - following the advice of Carl Icahn - to reuse every dollar of cash flow to fund stock buybacks, those short the name stand to suffer tremendous pain... like Ackman. It's also why HLF stock price just hit $73, more than 3x higher from where Ackman put on his short, and up more than 50% YTD.
"A big part of this is trying to cause a short squeeze. We just did something, which we will announce later this afternoon," he added. "What we did recently in the last few weeks is we converted our entire [Herbalife] short position into a put position. And as a result there is no longer an opportunity to squeeze Pershing Square."
That remains yet to be seen.
Ackman also said that his firm has 3 percent of its capital in derivatives betting against Herbalife's share price.
"Ultimately the [negative] fundamentals will prove right," he told CNBC. "Because it is in the form of derivatives, the upside is great and we don't have these risks associated with a short squeeze."
Of course, with puts Ackman just has that whole theta decay thing to worry about, but let's just ignore that.
It has not been a good year for Ackman, with herbalife shares up 51% year to date through Tuesday, more than 3x the S&P 500's 15% return. Ackman has also been hit in recent years with not only his terrible investment in Valeant Pharmaceuticals but also Chipotle Mexican Grill.
There was some good news for long-suffering investors: Ackman revealed his fund is "well" off its bottom by 20%, and return recently turned positive for the year.