Friday, January 23, 2015

Herbalife after options expiry - Part III: What is UBS's game?

We now know one of the the new shareholders that Herbalife has after option expiry. My count is that there are more new and large shareholders.

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.



Anonymous said...

Per Bloomberg HDS screen, UBS O'Connor (asset manager), UBS Global Asset Management, UBS Fund Management, UBS ETF and UBS Fund Services are not sure what you're talking about saying "not on behalf of their asset management companies." Misleading post or just sloppy?

Anonymous said...

john, this trade was done in Q4 not after options expiry

John Hempton said...

It matters not when the trade was done.

There are 45 million short in Ackman and friends (puts, physical) but only 30 million ACTUAL shorts.

That makes 15 million synthetic shares long.

We have found 6 million of them.

9 million more to come.


And did they buy that many shares because they want to do something with them.

Being short this is INSANE.

greg8885 said...

Hey John, a lot of this is beyond my understanding of options trading, but going back to the last post, how did you reach the conclusion that he has to be short at least 40 million shares to qualify as "much larger?"

.... said...

John - I respect the work you've done, but can't you admit you might be missing something?

Being short this has been insanely profitable.

I have no position. Just find this kind of weird/sad.

Anonymous said...

The $U is on fire making the product more expensive almost everywhere around the world. Won't this crimp demand and/or margins?

Anonymous said...

John, do you think Herbalife is still a stable growing franchise or do you think it is now in decline?

Have you gone back to any of the nutrition clubs? Are they growing membership still?

The conversation about share ownership and potential for short squeeze is interesting, but it seems like a side show to the broader questions of the business which you wrote some interesting blogs on in the past year or two.

Anonymous said...

Your work is remarkable however you are unfortunately wrong on HLF. You should get some puts to hedge your probably emotional bias.
Best regards

Mak said...

How do we know that Ackman hasn't exercised those puts and then immediately covered?

Anonymous said...

Why don't you be specific about who you think is now long, and why?

Anonymous said...

At end of the day HLF is in downtrend. All these posts (too many related to HLF) might show your intelligence and display your emotions but its ultimately the price that matters and with the down drift I firmly believe that you're simply on wrong side. You should have humility to put the stop loss and get out and then write posts on HLF. That's how one should work in the business of money management.

Anonymous said...

John -
why do believe its the investment bank holding the shares? UBS has an investment management arm with $150bn under management. one of there funds is taking a position. what is your evidence that its the investment bank ?

Anonymous said...

John, heard your comment on SA was deleted. Welcome to the club, I've been banned for exposing the hypocrisy perpetrated on that site. That site has now become an official shill for the Ackman lemmings.

Carl Kahnt said...

this options stuff is all greek yogurt to me! tofu instead of protein powder?

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