If you think Bill Ackman’s had a pretty bad18 months, it’s about to get a lot worse. At least, this is Herbalife’s take. Sure, the diet shake purveyor/alleged pyramid scheme’s sales and revenue are heading down, and sure it’s about to be subject to some pretty strict new guidelines under an FTC settlement that stopped just short of declaring it a pyramid scheme and sending its stock where Ackman believes it belongs: zero. On its face, this all looks very good for Ackman and his long-suffering Pershing Square clients. After all, the FTC says Herbalife has to prove that 80% of its sales are real and not pyramid-y, which Ackman says it won’t be able to do. To which Herbalife retorts, au contraire.
Herbalife said it easily exceeded the new FTC threshold, showing that 90 percent of sales since May 1 have met the new guidelines.
"We knew we would be able to meet the threshold test of 80 percent because we knew we had real customers," Hoffman said….
"These figures should put an end to any questions regarding demand for our nutritional products and the strength of our go-to-market business model," said Richard P. Goudis, Herbalife's new CEO.
Unsurprisingly, Ackman smells a rat. First, all of this guidance lowering comes just a few weeks after Herbalife raised guidance, which looks an awful lot like market manipulation and insider-trading to him.
"On May 4th Herbalife raised guidance driving the stock to new highs. Insiders including [CEO Michael] Johnson sold their stock and options. Fewer than three weeks after the stock sales, the company is now lowering guidance, somehow claiming that it is surprised by reduced volumes the first month the FTC settlement takes effect," the hedge-fund manager said in a statement emailed to CNBC.
Also, if things are looking so good, why is everyone—including the guy who signed that FTC deal—jumping ship.
"We also recently learned that Mark Friedman, the company's general counsel and the only signatory of the settlement agreement with the FTC, and other top executives have left the company. Remarkably Herbalife has yet to disclose, let alone explain the reasons behind these departures," the Ackman statement continued….
On May 23rd, China Securities Journal reported that the head of Herbalife's China operations had abruptly left the company after a 10-year career there. No press releases from the company in May or June discusses executive departures and no news was disclosed to the SEC.
Herbalife cuts sales guidance; exceeds key FTC mandate [CNBC]
Bill Ackman calls out Herbalife after the company cuts sales outlook [CNBC]
Herbalife’s Friedman leaves general counsel role –document and source [Reuters]