Why is Third Point shorting Nu Skin?

After supporting the much-maligned Herbalife, activist investor Dan Loeb bets against a similar multi-level marketer.

By Aimee Picchi Jan 22, 2013 2:08PM

Image: Arrow Down (Kyu Oh/Photodisc/Getty Images)Activist investor Dan Loeb, who runs the Third Point hedge fund, has taken a short position in Nu Skin (NUS), a multi-level marketing company that sells anti-aging products, reports the New York Post.


It's a bit of an about-face for Third Point, which was revealed earlier this month to have taken a stake in Herbalife (HLF), a company targeted by well-known short-seller Bill Ackman as a "pyramid scheme."


It appears that Loeb is "playing both sides of the mutilevel-marketing field," the Post writes. Both Nu Skin and Herbalife sell their products in a similar way, with distributors profiting by recruiting more people.


Third Point reportedly took a "sizable" short position in Nu Skin, with its research into the company stemming back to 2011. Loeb is said to have a "dim view" of Nu Skin, although a representative for the hedge fund declined to comment to the Post. 


At the heart of the issue is concerns about Nu Skin's expansion to China, which bans multi-level marketing plans. 


Those concerns are similar to ones aired by Citron Research last summer in a report that alleged Nu Skin was operating multi-level "and/or pyramid sales activity in China, both expressly forbidden by law in that country."


According to Citron, one of its contacts attended a Nu Skin conference in the Chinese city of Hefei, where the company's speaker explained its structure as "like a pyramid." Its report also flagged alleged "flimsy and unsubstantiated medical claims."


After Citron released the report in August, its shares took a beating, although they have since recovered. Since the start of 2013, its stock is up 21%. 


Loeb's Third Point was revealed to have bought 8.9 million shares of Herbalife earlier this month, while Ackman's Pershing Square has a short position of more than 20 million shares. 


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