Ackman delivers new evidence on Herbalife
Pershing Square's William Ackman anticipates Herbalife implosion in 2015 (Part 1 of 9)
Ackman believes Herbalife’s pyramid scheme will likely implode in 2015
William Ackman, founder and CEO of Pershing Square Capital Management, said in a Bloomberg television interview last week that former top distributors of Herbalife (HLF) are disclosing evidence to the state that the company operates as a pyramid scheme. Ackman added that the implosion of Herbalife is a likely scenario in 2015. His latest salvo against Herbalife might not have had the desired effect on the company’s share price, but it reopened discussions on the company’s business practices.
Ackman also released a video from 2005 that showed a top distributor talking about the company’s deceptive recruiting practices. While shares took a minimal impact, Herbalife stock is down almost ~52% year-to-date. In this series, we’ll look at the latest developments that have impacted the company’s performance and share price.
Herbalife’s response
Herbalife has continually denied Ackman’s allegations. A company representative recently said, “Each quarter Bill Ackman pulls some stunt to help out his put options and drive down the stock price, all to benefit his billion-dollar portfolio. All companies evolve and selectively picking out a few anecdotes that are close to a decade old does not accurately reflect the current activities of the millions of members and customers who use our products on a daily basis.”
Ackman’s campaign against Herbalife
Herbalife is a global nutrition company that sells the following products:
Weight management products
Nutritional supplements
Energy, sports, and fitness products
Personal care products
As discussed earlier , Ackman has pursued Herbalife since December 2012 when he issued and presented a critical research report on Herbalife’s multilevel marketing business model. He accused the company of being a pyramid scheme that would be shut down. Ackman’s campaign prompted investigations into the company’s business practices earlier this year by the U.S. Federal Trade Commission (or FTC), the U.S. Securities and Exchange Commission, the U.S. Department of Justice, the Federal Bureau of Investigation, and even Canadian regulators.
Multilevel marketing (or MLM) is a type of direct selling, but it has faced controversy over claims that some are pyramid schemes. According to the U.S. Securities and Exchange Commission, a pyramid scheme is “a type of fraud in which participants profit almost exclusively through recruiting other people to participate in the program.” Besides Herbalife, some of the known multilevel marketing companies include Nu Skin Enterprises, Inc., (NUS), Usana Health Sciences, Inc., (USNA), Avon Products, Inc., (AVP), Tupperware Brands Corporation (TUP), Mannatech, Incorporated (MTEX), and Amway.
In the next part of this series, we’ll discuss Ackman’s views on Herbalife’s stock price.
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