• The Failure Of A Hedge Fund’s Lobbying Campaign To Bankrupt A Company

    The numbers are not in for 2017 yet, but in 2016, the top 50 companies spent more than $716 million to lobby the federal government and Congress, according to data provided to The Hill from the Center for Responsive Politics.  In 2015, that number was $715 million and one can reasonably expect that those numbers will be close to $800 million for the past year thanks to a frantic lobbying campaign over tax reform and the effort to repeal Obamacare.

    According to The Hill, Amazon spent a whopping $11.4 million and the Chamber of Commerce spent a shade under $104 million.  Many of these companies and trade associations were lobbying to make sure that government policies did not harm them and to set the table for the massive tax reform bill that recently was signed into law.  These big companies are not the only ones working to move government to their will.

    Pershing Square Capital Management’s Bill Ackman bragged in July of 2014, as quoted in The Street, that he had spent $50 million in a press relations battle to bankrupt the sports nutrition company Herbalife.  Ackman, until recently, had a $1 billion short position on the company and he needed the company to go belly up to collect his bounty.

    According to a New York Times report on June 2, 2015, Ackman “employed a handful of law firms and the Global Strategy Group, a public affairs firm that organized rallies and conducted opposition research on Herbalife. He also hired lobbyists to attract the attention of lawmakers, including Senator Edward J. Markey, Democrat of Massachusetts, when Mr. Markey was a member of the House. In January 2014, months after his staff had met with Mr. Ackman, Mr. Markey wrote letters to the F.T.C., the S.E.C. and Herbalife.”  The FTC did open an investigation, but, after a settlement, the company has been operating profitably.

    Ackman bragging that he spent $50 million on public relations does not even count the cash he paid to lobby the government directly to bankrupt the company.  The fact that Ackman had to back away from his “short position” and converted his position to “put options” because he was unsuccessful.  Some on Wall Street consider this to be the most expensive short position in history.  At a minimum, this is clearly the most comprehensive and aggressive action publicly reported by a hedge fund to attack a company for profit.  It must have really hurt the bottom line of Pershing Square to maintain this short position for so long.

    As Beau Rothschild wrote in the Washington Examiner on January 14, 2018, this is a classic example of the “Dark Side of Lobbying.”  Rothschild wrote that he worked on Capitol Hill for years and had a number of meetings with lobbyist. When he had meetings with interests similar to Ackman those meetings gave him “a bad feeling in the pit of my stomach, because these lobbyists came into the office to push for action that clearly would help their client to the detriment of other companies.”  I am a former Hill staffer too and agree.  I have had the same types of meetings.

    Thankfully this effort played out in public and it failed.  Hopefully, many on Capitol Hill will recognize these types of dark lobbying and public relations tactics and back away from trying to use the power of government to gather up billions in profits by killing profitable companies.


    Cloakroom Confidential

    Cloakroom Confidential was a longtime Capitol Hill staffer and insider who has contacts in the House and Senate at the highest levels.

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