Ackman sticks with Herbalife short sale, promises new information in 2014

BOSTON Mon Dec 23, 2013 3:49pm EST

William Ackman, CEO of Pershing Square Capital Management, speaks at the Partner Connect 2013 conference, sponsored by Thomson Reuters, in Boston in this April 5, 2013, file photo. REUTERS/Brian Snyder

William Ackman, CEO of Pershing Square Capital Management, speaks at the Partner Connect 2013 conference, sponsored by Thomson Reuters, in Boston in this April 5, 2013, file photo.

Credit: Reuters/Brian Snyder

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BOSTON (Reuters) - Herbalife is still engaged in improper recruiting tactics and is likely violating multi-level market restrictions in China, activist hedge fund manager William Ackman wrote to his investors on Monday.

The billionaire investor on Monday told clients in a letter, seen by Reuters, that he would soon be releasing findings that his own investigation into the nutrition and weight loss company has turned up. So far, he said that he has shared those findings only with regulators.

"Our next presentation, among other issues, will include an analysis of the three principal sources of revenue growth for the company: Internet-based lead generation, nutrition clubs, and the company's China operation," Ackman wrote.

Herbalife prohibited "lead generation" methods to find new distributors at the end of June, but Ackman said the practices, promoted by the company's top distributors, are still being used.

Herbalife spokeswoman Barbara Henderson said the company has no comment.

The battle over Herbalife as been one of Wall Street's enduring dramas this year as it pitted Ackman against other prominent hedge fund managers including Carl Icahn, the company's biggest shareholder.

A year ago Ackman called the company a pyramid scheme, something the company has vehemently denied, and he predicted the share price would sink to zero when regulators shut the company down.

ACKMAN STICKING WITH SHORT POSITION

Ackman also said he was sticking by his $1 billion bet short selling Herbalife's stock which he made public a year ago and which has cost his $12 billion Pershing Square Capital Management as much as $700 million in losses, people familiar with the fund have estimated.

Herbalife's stock price has surged 146 percent this year to $81.03, having gotten a sizable boost last week after accountants found no material change in the company's reaudited financial statements.

However, at the beginning of December, overall Ackman's fund Pershing Square was up roughly 10 percent for the year and Ackman did not provide updated performance numbers in the letter.

Pershing Square restructured the Herbalife bet in the last few months as the share price kept rising.

"We continue to believe that our Herbalife short position offers an extremely compelling, and, as now structured, even greater asymmetric payoff than before because of the stock price's substantial rise," he wrote.

Herbalife, Ackman wrote, has spent tens of millions of dollars to discredit his hedge fund, trying most recently to persuade Pershing Square investors to redeem from the fund.

Investment bank "Moelis & Company even offered to stop this campaign if we would agree to no longer push our regulatory agenda and to refrain from any further public statements," Ackman wrote. But he said he thinks Herbalife and Moelis may have quit their campaign "as a result of media scrutiny."

(Reporting by Svea Herbst-Bayliss; editing by Clive McKeef)

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Comments (3)
earlpearl wrote:
ackman predicted hlf would go to zero.he has been right 5 times, 1st it went to 4 zero then 5 zero then 6 zero then 7 zero now 8 zero soon to be double zero with a big ONE in front of it…ackman seems to be slow learner..he needs to go back to bicycle racing, he lost at that too but it was cheaper.

Dec 23, 2013 8:41pm EST  --  Report as abuse
earlpearl wrote:
ackman predicted hlf would go to zero.he has been right 5 times, 1st it went to 4 zero then 5 zero then 6 zero then 7 zero now 8 zero soon to be double zero with a big ONE in front of it…ackman seems to be slow learner..he needs to go back to bicycle racing, he lost at that too but it was cheaper.

Dec 23, 2013 8:41pm EST  --  Report as abuse
Tex2 wrote:
Many people don’t understand the definition of an illegal pyramid. Here’s the simple definition, and it describes Herbalife perfectly: Most or all of the products are sold within the organization, and little to none to customers who are not distributors. Here’s the FTC and SEC links to this definition: google “FTC the bottom line about multi level marketing” and “SEC investor alert pyramid”. Also, companies similar to Amway have RICO fraudulent tool scams, making the scam significantly worse: “stop the amway tool scam wordpress”

Dec 25, 2013 1:27pm EST  --  Report as abuse
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