Hedge fund manager Bill Ackman unleashed a new salvo of accusations against Herbalife International Inc., the purveyor of dietary supplements that he calls a pyramid scheme, but failed to persuade investors to ditch the company’s shares.
During a presentation in New York that lasted more than three hours, Mr. Ackman detailed the findings from his lengthy investigation into Herbalife’s business practices. His firm, Pershing Square Capital Management LP, has placed a $1-billion (U.S.) bet that Herbalife is destined to collapse.
In unusually personal terms, Mr. Ackman accused Herbalife and its chief executive Michael Johnson of perpetrating a fraud against minority and immigrant communities in the U.S.
“Michael Johnson is a predator,” said Mr. Ackman at one point, visibly moved. “This is a criminal enterprise.”
Mr. Ackman’s presentation focused on Herbalife’s use of nutrition clubs to sell its dietary shakes and teas. Mr. Ackman said the clubs are engineered to recruit new members rather than to sell products to customers and accused the clubs of illegally relying on unpaid labour.
Herbalife’s shares had tumbled on Monday in advance of Mr. Ackman’s presentation. On Tuesday, however, they surged 25 per cent as investors decided that the latest revelations were not the knockout blow that Mr. Ackman had claimed.
The firm has repeatedly denied Mr. Ackman’s accusations. “Once again, Bill Ackman has over-promised and under-delivered on his $1-billion bet against our company,” Herbalife said in an e-mailed statement on Tuesday. “The facts are on our side.”
Tuesday’s exchange is the latest round in a brawl that has transfixed Wall Street ever since Mr. Ackman first unveiled his bet against Herbalife in late 2012. It’s a battle that involves not one but two renowned activist investors: Mr. Ackman and Carl Icahn, who took the opposite side of the bet by buying a significant stake in the firm.
The next move in the conflict belongs to U.S. authorities, whom Mr. Ackman is hoping to goad into action. Several probes are under way but have yet to produce any concrete results. The Federal Trade Commission and the Securities and Exchange Commission have launched investigations into Herbalife. So too have prosecutors at the federal level and in two states. Canada’s Competition Bureau is also scrutinizing the firm.
Herbalife asserted Monday that Mr. Ackman is running out of time to make good on his bet against the company, noting that the stock options he used to construct his position expire in early 2015. Mr. Ackman scoffed at such logic, saying he could extend those contracts if he wanted to.
Mr. Ackman is a veteran of bruising corporate battles. He successfully fought to oust the previous leadership of Canadian Pacific Railway Ltd. Earlier this year, he joined with Canada’s Valeant Pharmaceuticals International Inc. to launch a hostile bid for Allergan Inc.
At one point during Tuesday’s presentation, a questioner asked whether Mr. Ackman’s aggressive language about Herbalife was courting a lawsuit, noting that such a proceeding would force the company to turn over internal documents. Mr. Ackman grinned. “Sure, that’d be great,” he said. “Bring it on.”
Mr. Ackman’s crusade against Herbalife has also turned into a personal cause. He has pledged to give away whatever personal profit he generates from the investment and has promised to continue pursuing the company regardless of what happens to his wager. On Tuesday, he choked up as he described his own family’s immigrant journey and accused Herbalife of exploiting people seeking better lives, particularly among the Hispanic community.
His presentation centred on the company’s use of nutrition clubs. Mr. Ackman claimed that such clubs, which operate from unmarked storefronts, were responsible for half of the company’s revenue. To sell products, he claimed, the clubs employ sophisticated schemes that oblige trainees to consume the firm’s own goods and to recruit new members, all in the hopes of gaining the opportunity to open their own club.