Friday, January 23, 2015
Herbalife after options expiry - Part III: What is UBS's game?
That shareholder of record is UBS Group AG on behalf of itself and its wholly owned subsidiary UBS Securities LLC, UBS AG London Branch and UBS Financial Services Inc.
Note that this is UBS Group on behalf of bank and trading companies and not on behalf of their asset management companies.
Bluntly there is no way that the banks are holding that much Herbalife stock (over 6 percent of the company) unhedged. That is not what banks do. [Even Michelle Celarier - a reliable Ackman shill - has tweeted that UBS holds it as part of its market making.]
So UBS hold the stock and they have entered a total return swap or similar with some undisclosed party. I have my guesses as to who (but that is for a later post).
And it likely that the stock they hold they have in turned lent to an investment bank (which I will call Bank A) which wrote the put options to Mr Ackman. Bank A needs to borrow the stock because they need to be short the stock for the purpose of hedging the options they wrote to Mr Ackman.
The new holding was disclosed under rule 13g which is only for passive holdings. (Activist actions such as trying to influence the board are prohibited if you file on 13g rather than 13d.)
However the nature of the filing neatly falls into a widely discussed whereby an activist investor who would normally have to disclose on form 13d can hide their identity. [See this article from Harvard law blog on activist abuse of Rule 13d.]
So what do we know.
(a). There is a new shareholder.
(b). They have gone to some lengths to hide their identity and fit their holding into a loophole in the disclosure rules.
Also when I count shares I think there is more than one new shareholder. I keep counting shares and there is a missing large block.
Most new shareholders would have ten days to disclose. I would say the clock is ticking but my guess is that the UBS swap agreement might last a few months.
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