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
Let’s talk about two tenuously related stories about government filings, why not. I don’t have much to say about this Mitt Romney Bain thing today but go read it, it is fascinating. Basically Mitt Romney certified under penalty of perjury in some federal electoral forms* that he was not involved with Bain Capital after 1999, and he also certified under penalty of perjury in some SEC forms that he was CEO of Bain Capital from 1999 to 2002, so by the fallacy of the excluded middle (?) he is definitely guilty of a federal felony,** which sounds terrible until you realize that so is everyone else, really, because breathing air is a federal felony, but this is a different obsession of mine.
Anyway Dan Primack is defending Romney and basically saying “being the CEO of some old fund for SEC filing purposes is not the same thing as actually running a private equity firm, and you can tell from the fund marketing documents that he wasn’t actually running it,” which I suspect is roughly correct as a matter of his working life, and as a matter of acquitting him of felonies, though also not entirely politically palatable – “when I said I wasn’t involved with Bain Capital after 1999, I meant except for being CEO,” etc. etc.
Moving on quickly to the other piece of federal filing arcana: Bill Ackman is buying some P&G stock so he can sell shampoo at Burger King or something. Buy! Or sell! Or something. But the weird thing to me was: how often do you see a story that is like “activist investor is granted early termination on HSR filing”? Is “never” the right answer? Maybe? Read more »