Bill Ackman promised a “death blow” for Herbalife. Instead, the hedge fund boss’s 250-page presentation on Tuesday saw the nutritional-supplement seller’s stock surge 25 per cent by the end of New York trading – recouping as much again as the shares had lost the day before in anticipation of his revelations.
In what he billed as the most important presentation of his career, Mr. Ackman promised to expose Enron-like fraud at the nutritional supplement maker. Beyond the crowd in the room, more than 10,000 people tuned in for the webcast. Yet after three hours, Wall Street clearly felt the lack of a smoking gun.
For more than a year, Mr. Ackman has been a vocal short-seller of Herbalife, talking of a pyramid scheme. He said he has spent $50-million (U.S.) investigating the company, going so far as to stake out entrances to nutrition clubs and commission undercover infiltrators. The result is massive amounts of information on Herbalife’s strategy and business model.
He claimed, for instance, that Herbalife’s clubs are perpetuated by revenue from “fictitious customers.” Training programs that require students to meet certain sales result in pressure on the participants’ friends and families to buy their products. Another major theme was that Herbalife targets poor Hispanics. Both of these observations may point to a business model that is unappealing to some, but such methods are hardly unique to Herbalife and aren’t obviously illegal.
Investors aside, Mr. Ackman is hoping he can attract the attention of regulators with his allegations, which Herbalife has denied. And naysayers are sometimes lonely until they are shown to be right – David Einhorn’s critique of Lehman Brothers before the financial crisis springs to mind.
Moreover, with his main fund up 25 per cent in the first half of the year, the Pershing Square founder is no slouch as an investor. But when it comes to his latest tilt at Herbalife, for now he seems to be doing more to burnish his credentials as a blowhard.
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