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Herbalife Ltd. Message Board

  • rogersbank rogersbank Dec 22, 2012 10:12 AM Flag

    PrePaid Legal

    HLF is a sequel to the PrePaid Legal story. It was one of the top ten most heavily shorted NYSE stocks for years. Shorts supported lawsuits, regulatory reviews, made presentations...... basically the same playbook.

    Spoiler Alert..... That movie's plot went like this:
    1) the company put together a bank group that unemotionally looked at the cash flow
    2) The company began to buy back stock with its extra cash
    3) the bank group loan money, time and again at ever rising amounts to allow the company to buy back stock
    4) The company declared a dividend
    5) several years later, the shorts eventually capitulated
    6) the stock rose from the mid teens to over $70
    7) Finally, a very large private equity firm made a cash offer and took the company private in the $60 range.
    8) the ridiculous lawsuits went away
    9) the company continues to prosper
    10) the longs made money
    11) the shorts were burned.....

    Sentiment: Strong Buy

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    • As others have suggested before on this thread, this is playing out just like the early days of the Prepaid legal saga. Shorts can panic a market just like crying fire in a crowded Theater, but where there is not fire, the building is still standing and will fill up again.

      Sentiment: Strong Buy

    • OK, PPD is a good example. But notice what people could have done. They could have sold out. And then when the dust settled, they could have bought back.. Like you said, it was a long process. Took at least a few months.

      So, why would you want to be holding HLF right now? When the dust settles (if it settles), HLF may well be trading in single digit. There will be plenty of chance to buy then.

      So, you seem to be contradicting yourself by saying HLF is a strong buy, when you have a perfect example in front of you why HLF is NOT a strong buy.

    • do a google search for Prepaid Legal..
      See the mess it was in.
      Same issues as HLF
      Same short attach.
      Same, Same, Same

      Now look at the 5X return when this well oiled, cash flow generating company was taken private.

    • Rogersbank,
      I was going to write my personal experience about PPD until I saw your post. So I'll just add mine to your synopsis, which is entirely correct.

      About 10 years ago or so, I was thinking about becoming a PPD distributor. I liked what I saw and thought "I should buy some stock too." I think it was trading around $15-20/sh. Well, right after I bought the short-sellers began to attack and I could not stomach the daily swings (mostly down) and eventually become a nominal believer in their thesis. People don't realize how much influence the talking-heads on CNBC, Bloomberg, etc. have with the average retail investor. I know because I was one who came to believe them. I sold and was thankful that I "got away" with only losing several thousand dollars on a stock that I heard many times over was sure to go to zero. I decided not to become a distributor either.

      Last year, I could not believe it when I saw that they were being taken private at about $66/sh. I couldn't believe they were still in business. How did that happen? See your synopsis above, except I got out before the banks, etc. came in and started buying back stock.

      It seems to me that MLMs are about as American as grandma, apple pie, guns and Christmas. They are part of the fabric of the America and they aren't going away. And many of the distributors are rabid in their belief in "their company". They use the products (and so does everyone in their family), they give the products as gifts, and they get others to buy them because people like to help their friends succeed.

      Americans love the idea of being their own boss, and doing something for which they don't have to answer to "the man". And they can make a little money on the side too. Very few make a full-time living, but enough do to keep the train going. Many of my college-degreed relatives, neighbors and friends are into various MLM entities (Avon, Melaleuca, Amway, Herbalife, Arbonne, Mary Kay, Longaberger, etc.).

      I am puzzled as to why Ackman is following in the train of less high brow investors/analysts to essentially take on the MLM industry which many have tried before. He gives off an air of being more sophisticated. This seems to be a well-worn, "low and dirty" campaign. Does he really think that no one is as smart as he is and he has discovered in HLF a "hidden gem" that no one has analyzed before?

      Sentiment: Hold

    • Rogersbank,
      I was invested in PPD around the time that it came under attack by short-sellers. About 8-10 years ago, I bought the stock at about the same time that I was considering becoming a distributor for PPD. However, I could not stomach the daily swings and the constant barrage from the analysts and short-sellers and subsequently became a nominal believer in their thesis. So, I sold and was thankful (at the time) that I got away with a loss of only about $5,000. I think I sold around $11/share. I completely forgot about it until I saw the news item a year or two ago that they were being bought out and taken private at $66/share. Needless to say, I couldn't belieive it. I thought that surely they would be out of business because it had been discovered that they were a "pyramid scheme" that sold a commodity-type product (basic legal services).

      Well, I don't know if the same thing will happen here. People sure do have short memories. Ackman is supposed to be somewhat of a high-brow investor and for him to get down in the ditch with the dogs on this one is puzzling. Has he done anything like this before (in terms of putting together a campaign, website, etc. to target a company he is short-selling)? Will he short more?

      If he's been short 20m shares since last may, he's paid out about $20 million in dividends as well.

      Sentiment: Hold

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