As Herbalife Shorts Soar, The Squeeze Continues

Tyler Durden's picture

A week ago, on December 26, when Whitney Tilson announced he was piggybacking on the Einhorn-Ackman Herbalife trade, we asked if a short squeeze was imminent "as Tilson jumps on the Herbalife bandwagon." The stock was trading in the mid-$20s. This morning it will open just shy of $35, a 30% gain in one week, which more or less answers our rhetorical question. As a reminder, the Herbalife as a "ponzi scheme" thesis has been around since 2009 (check valueinvestorclub.com, not to be confused with the aforementioned Tilson's VIC) and anyone who assumes this is a valuation catalyst is very much wrong. Which is why the recent surge in the stock may just be the beginning: as was reported late last week, Short Interest in the stock has soared ever since HLF came to the forefront of newsflow to a whopping 26.22 million shares, an increase of 5 million shares short in the past week alone, and amounting to 24% short interest of the total % of shares outstanding.

Source: CapIQ

Which begs the question: with the price virtually screaming for an epic short squeeze, is management, in consultation with its recently hired financial and legal advisors, contemplating a Volkswagen like short squeeze, where it conceives a transaction whereby there are simply not enough shares in the free float to satisfy the short interest. This could be facilitated especially if the firm's institutional shareholders, chief among them Fidelity with 15% of the shares outstanding, were to pull their borrow (and one wonders just where Fidelity's fiduciary responsibility lies if it allowed Ackman to put on a 20 million share short, at least according to him, a trade that could only be enacted if Fidelity allowed him to borrow its shares to short the stock against Fidelity's long holdings), on top of a leveraged stock buyback or even MBO.

In short- could HLF, with 24% of its stock short, and where institutions control more than 76% of the shares outstanding, become the next Volkswagen squeeze play, and send the stock soaring far higher than ever before, in the process destroying Ackman (assuming he has still not covered his short), Tilson, and anyone else still short the name?

Maybe the answer to this question is just how much animosity does management harbor toward those very publicly short its stock.

We hope to find out soon enough.