Friday was a disastrous day for William Ackman’s Pershing Square Capital Management, who got stung by a reverse-hedge (which is a term I just made up). In other words, one of his long bets tanked, while the stock of his highest-profile short target surged on the same day. Shares of Valeant Pharmaceuticals International fell more than 13 percent to close at $29.88. On Thursday, the embattled Laval, Quebec drug company announced that it has created a new patient access and pricing committee that will oversee the pricing of the company’s drugs. The committee will be headed up by Joseph Papa, its new chairman and chief executive officer. Otherwise, there is no other apparent significant news about Valeant.
Meanwhile, shares of Herbalife surged 9 percent to close at $63.59. Unfortunately, this is Ackman’s big negative bet, with Ackman having long asserted that the multi-level marketer of nutrition and personal care products is one big Ponzi scheme. On Thursday the company reported quarterly results that beat analysts’ estimates. In addition, the company said in a regulatory filing it is in discussions with the FTC that are currently in the “advanced stages,” which could wind up costing the company $200 million. Investors apparently don’t think the possible settlement will significantly harm the company. “There are still a number of material open issues that could preclude reaching final agreement,” Herbalife adds in its filing.
Pershing Square got off to a very bad start this year. It rebounded sharply in April, gaining 10.2 percent for the month. But it is still off 18 percent for the year.
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At least Ackman does not appear to own drug maker Endo International, whose shares sank 39 percent on Friday. We won’t know for possibly one week who the biggest shareholders were at the end of the first quarter. At the end of the year, 16 hedge funds counted the stock among their top-ten holdings, according to Goldman Sachs. In fact, one of them — Tiger Cub Discovery Capital Management of South Norwalk, Connecticut — was the fifth-largest shareholder. Other major holders at year-end included New York-based Visium Asset Management and New York-based Brahman Capital Management.
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Chris Hohn’s TCI Fund Management has launched an activist campaign on Volkswagen, calling on the car giant to change its compensation policies. “Over the past five years the company has been held back by underperforming and overpaid management,” says Hohn in a letter to members of the Volkswagen executive and supervisory boards dated May 6. Hohn, who says his $10 billion London-based firm has an economic exposure of more than 2 percent of the company, laments the company has experienced six years of flat profits and that the core business “has gone significantly backwards.” Yet, over that six-year period, Hohn says nine management board members earned around 400 million British pounds, or $577 million in today’s exchange rate. Hohn calls this corporate excess “on an epic scale.” The hedge fund manager calls for a new remuneration system with transparent and measurable criteria for bonuses. This should be submitted to an annual shareholder vote for formal approval, he adds.
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Magnetar Capital was one of two institutional investors to participate in the $23 million Series A round of financing for Fountainhead Commercial Capital, which provides loans to small businesses. “Magnetar represents a great strategic partner as we expand our ability to provide credit for small business owners nationwide and pursue our mission to become the leading SBA 504 lender,” said Chris Hurn, founder and CEO of Fountainhead, in a press release. “Since launching last year, Fountainhead has used tech-enabled solutions to dramatically accelerate the traditional originating, structuring, approval and closing times for financing commercial real estate,” said Magnetar fixed income portfolio manager Michael Henriques, in the announcement. “Fountainhead is filling a void in the market and will help provide credit to qualifying small business owners.” Evanston, Illinois-based Magnetar had a total of $13.5 billion under management at the beginning of the year.
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Shares of Yelp surged nearly 24 percent, to close at $26.52, after the company reported first-quarter results that exceeded expectations. The company is known for its reviews of local businesses. Credit Suisse on Friday raised its price target on Yelp from $44 to $46, telling clients, “Yelp delivered better than expected top and bottom line results primarily on local advertising outperformance.”
Last week we reported that in the first quarter, David Einhorn’s Greenlight Capital paid $21.16 a share to establish a position in Yelp, in part because he thinks it is a good takeover candidate, asserting that it has “strategic value” and “has been approached by multiple potential acquirers.”
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Asian funds rebounded sharply in March from early-year losses. Even so, total capital invested with Asian hedge funds declined to $111.9 billion at the end of the first quarter, the lowest level since the third quarter of 2013, according to data tracker HFR. The Chicago firm’s Japan Index rose 3.1 percent for the month, cutting its loss for the year to 1.9 percent for the year. The HFRI China Index jumped 6.1 percent in March, paring its loss for the year to 5.9 percent. The HFRI Asia ex-Japan Index rose 6.9 percent in March, reducing its loss for the year to 3.4 percent.
