This week was looking like one that Bill Ackman would want to forget. It began with a New York Times article that read like something Herbalife CEO Michael Johnson and Carl Icahn might have collaborated on. It continued with yesterday’s $300 million Fannie Mae/Freddie Mac hiccup. Even Ackman’s latest presentation on what he very sincerely hopes is a pyramid scheme, accusing Herbalife of breaking Chinese laws, failed to either lift his spirit or dent its stock price. But this has definitely accomplished the latter, and almost certainly the former. Read more »
If you hadn’t previously heard, Pershing Square Capital Management’s Bill Ackman thinks that nutritional supplements company Herbalife is a big scam, a belief that has cost him (and his investors) a half-billion dollars. Nevertheless, he has stated that he remains confident that the white knights at the Federal Trade Commission will eventually ride in on their white horses and shut Herbalife down, thereby vindicating his belief that one day, Herbalife shares will be worth nothing, rather than more and more with each passing day.
Imagine his excitement, then, to read yesterday that FTC was cracking down on bogus weight-loss products. Well, Bill undoubtedly thought to himself, Herbalife sells a whole range of bogus weight-loss products! Alas, if the Pershing Square founder is still looking for the name “Herbalife” among the companies who paid the FTC $34 million to go away, he will be doing so for some time to come. Read more »
An important truism in the financial markets is that there’s no such thing as a “toxic asset,” tout court; everything is toxic/dangerous/Bad at some (high) price and attractive/safe/Good at some other (much lower) price and there’s a wide area in between where things mostly live and you fight about their pricing. You can apply that insight to junk bonds or CLOs or really any number of things, and you should, but today it’s sort of fun to apply it to Herbalife. As far as I can tell the argument over Herbalife goes something like this:
Herbalife opponents: Herbalife is a horrible pyramid scheme that preys on disenfranchised, mostly poor and minority people and convinces them to part with their life savings through misleading advertising and high-pressure sales techniques.
Herbalife supporters: True! And … ?
Opponents: And therefore it will be shut down by the FTC and the stock will go to zero.
Supporters: That’s … wow, that’s just hopelessly naive. I’m gonna go buy some HLF.
Today CNBC’s Herb Greenberg has a good statement of the “horrible pyramid scheme” case, which of course has been most memorably taken up by Bill Ackman, who is betting a billion dollars on “shut down by the FTC and go to zero.” And last week Bronte Capital’s John Hempton gave the classic statement of the “hopelessly naive” case.1 As one Herbalife shareholder put it when I asked if he thinks HLF is a pyramid scheme, “in the colloquial sense, yes; in the legal sense, no.”2