Hedge Funds

Bill Ackman Unimpressed By Business Model Of Selling Diet Shakes To Your Friends; Diet Shake Salesman Unimpressed By Business Model Of Being Bill Ackman

What is the best line from Herbalife CEO Michael Johnson’s amazingly hostile call with CNBC this afternoon, in which he maintained that Bill Ackman is wrong that Herbalife is a pyramid scheme? I think the two leading contenders are:

  • “Mr. Ackman’s proposition that the United States would be better when Herbalife is gone? The United States will be better when Bill Ackman is gone.”
  • “Our customers are sometimes called distributors. That’s the only confusion that we have.”

Oh that’s the only confusion is it? That’s … confusing. “You’re a pyramid scheme; you only sell products to your distributors.” “No we’re not, we sell real products to real customers.” “Oh.” “But we call the customers distributors.” I’m looking forward to a confusing exchange of press releases.1

Johnson’s claim is that the whole presentation, and the leak thereof to CNBC, are about market manipulation: “an extraordinary number of puts” on HLF are due to expire this Friday, he claims, and Ackman’s presentation tomorrow is designed to basically juice those puts going into expiry (and, one might add, year-end). That … I mean, sure, whatever.2

Johnson wants the SEC to investigate – “who is looking out for the individual shareholder?” – and I suppose there are imaginable fact patterns where Ackman is just manipulating the stock. If in fact he was long a bunch of puts expiring on Friday, puts out an anti-HLF presentation on Thursday, HLF responds on Friday, and Monday he’s all “yeah sorry I was confused about your use of the term ‘distributors’; you’re quite right,” but has meanwhile made millions on his puts … that would seem pretty manipulative! But you can really only do that once, max.3 You can I suppose window-dress your year-end more than once.

But more likely you just, y’know, you make your case, and people believe it or they don’t, and the stock goes down or it doesn’t, and you make money or you don’t, and it’s a market and it clears. A lot of corporate CEOs believe that arguing for your long position is the American way, but that arguing for your short position is … well, at least that the United States would be better off without it, at most that you should go to jail for it. CEOs, being structurally long their stocks, would of course think that way. But it’s hard to imagine the SEC concluding that that’s manipulation. I mean, again.

One strange part of the brewing fight is Herbalife’s claim that they “have been informed that Mr. Ackman has shorted our stock for the past 7 to 9 months.” What … what does that prove? If you’re just manipulating a stock for a quick buck, why wait nine months to tell anyone about it?

Herbalife Disputes Ackman’s Claim of ‘Pyramid Scheme’ [CNBC]
Herbalife Company Statement Regarding Ackman Allegations [HLF]

1. Is Herbalife … y’know … a pyramid scheme? I SURE AS HELL DON’T KNOW. I can tell you that one or both of (1) Bill Ackman and/or (2) Michael Johnson knows better than I do, so go ask them. Or just read Herbalife’s 10K, as I previously did.a Just start right at the beginning:

We are a global network marketing company that sells weight management, nutritional supplement, energy, sports & fitness products and personal care products.


To be fair here is a sober analysis by a Northwestern marketing professor concluding that Herbalife is a legit direct-marketing firm, not an illegal pyramid scheme, because it’s actually based on sales of a real product rather than just recruiting.

a. Read footnote * there, from my pre-hyperlinking days. How far we’ve come! As has Herbalife, incidentally; it closed at $52.70 the day after Einhorn’s sally, and at $37.32 today.

2. Here are December puts:

Here are January puts:

I count about 53,000 December put contracts between $25 and $50, or 5.3mm shares; if the stock goes to zero by Friday then whoever owns them will make $200mm or so. Is that an extraordinary number of puts? I dunno; it’s a lot, and it’s like 70% more December puts than January puts – but then there are like 120% more December calls than January calls in that same price range. I feel like “ooh magic expiration dates” is not the explanation here? HLF equity SI shows 20.7mm shares of short interest in Herbalife as of the last exchange report.

3. Are there any examples of anyone literally doing that? Like, making a big public case against a big public company with a bunch of trades that expire before the case unravels? That would be strong.

(hidden for your protection)
Show all comments

29 Responses to “Bill Ackman Unimpressed By Business Model Of Selling Diet Shakes To Your Friends; Diet Shake Salesman Unimpressed By Business Model Of Being Bill Ackman”

  1. hmjjbe says:

    Look we all know I’m right about everything…if only Target would have spun off their real estate into a REIT, arghhhhh!

    -Bill “I’ve had one-to-many mojito’s” Ackman

  2. gfgf says:

    On a serious note – it does sort of sound like a pyramid scheme re: selling to distributors, but then again aren't most macro breweries/liquor distilleries using the same business plan of maker -> distributor -> retailer -> customer?

  3. St. Copious says:

    Not easy to be funny and informative/insightful Matt, but this was both.

  4. Wire says:

    How far we've come, indeed.

  5. Guest says:

    Ever since Jon started I seem to enjoy Matt's posts more.

  6. Kegels123 says:

    Thank you Bill for my next short idea.

    Your friend,
    Whitney Tilson

  7. guest says:

    So let me get this straight, I should be long a piece of shit retailer with sales declining 26% and losing money and short a company growing 13% with 16% operating margins?

  8. VonSloneker says:

    I am unimpressed by both Bill Ackman's and the Diet Shake Pyramid business models…

    – McKayla Maroney, Outdated Meme Quant

  9. Matt thanks for your impressive article with lots of information on diet issue!!! I'm pleased totally to come this blog and got an inspiration to reduce my weight by applying diet tips. Thanks!!!!!!!

  10. Agen bola says:

    Learned a lot from it. I will store your webpage and will continue to keep read through your new articles. Wonderful! Thanks!
    Jasa SEO

  11. beginner713 says:

    nice post keep it up
    i hate writing research papers

  12. Ravi Nirvana says:

    There are so many different prospects when it comes to this subject. Thanks for sharing your knowledge on this particular aspect and making it easier for us.This post has helped me to have another perspective. VISIT THIS SITE RIGHT HERE to get more info

  13. Ravi Nirvana says:

    I was actually going through the nice helpful tips from the blog, The post contains really beneficial information that will satisfy readers and can clarify things upon. I really put respect to the writer of this article.. CLICK OVER HERE to get Awesome information

  14. BJ Saunders says:

    Wow that's a briliant approach to short selling. Looking forward to the next one Bill:)

  15. struggler21 says:

    You definitely know what you were talking about and seem to have a very high interest on the topic. It can be seen from your post that you know a lot about it. Thanks for sharing with us!!!!!
    Elpis Gaiana

  16. Ravi Nirvana says:

    I like what you guys are up to. Such intelligent work and reporting! Keep up the superb works guys. I have incorporated you guys to my blogroll. I think it will improve the value of my web site. http://handyorten.usc-mrt.de

  17. Tomhenry says:

    I don't know about this because i am new in this business field and doing study on products model and how to sell them.buy cheap essay online

  18. Andrew Moore says:

    I feel rally happy and so excited to go through such a nice post and as it goes on it takes us in deep n deep in the well of information.I am grateful to have this post shared.Thanks..http://degoedkoopste-zorgverzekering.com

  19. Mark says:

    This specific is usually a excellent examine personally. Thanks for submitting posts developing a excellent insight encourages me personally to confirm more frequently for fresh create ups. Keep placing! http://www.theslimmingsupermarket.co.uk