Bill Ackman: Herbalife is doomed

The billionaire investor says the business will be shut down, possibly within a year.

By Benzinga Nov 6, 2013 12:48PM

Credit: © Tiffany Rose/WireImage/Getty Images
Caption: Herbalife product at the Nautica Malibu TriathlonBy Jim Probasco


Despite having lost millions thanks to his short position in Herbalife (HLF), activist investor Bill Ackman is holding firm.


In fact, Ackman told students at Oxford’s Saïd Business School last week that the company would go belly up, possibly within a year.


In a wide-ranging talk, now posted on YouTube, Ackman said, "I'll make a prediction. This business will be shut down. This business will collapse. I can't give you the precise date, but we will have made progress in that direction within 12 months. That's my prediction for today."


Ackman has said the company was a “pyramid scheme” and has backed up that belief with a short position that includes a price target of $0, according to Business Insider. Ackman rarely takes a short position and has said that when he does he believes the world would be better off once that company is out of business.


Ackman's short position in Herbalife resulted in a battle royale of sorts with another activist investor, Carl Icahn, who bought 16 percent of Herbalife and declared Ackman “totally wrong.” In the Oxford interview Ackman said, “Seems like every day (Icahn) goes on CNBC and says what a great company it is. Every time he says that the stock goes up a few dollars."


Icahn isn’t the only one who believes Herbalife has potential. Timothy Ramey, analyst at D.A. Davidson & Co., said Tuesday that he expected the company to experience rapid growth in China, according to Valuewalk.


China, currently the third-largest market for Herbalife, will become No. 1 by 2015, Ramey said. The company had 77 percent net sales growth year-over-year in China, accounting for 11 percent of Herbalife’s total revenue in Q3.


Ramey did acknowledge that Ackman’s attacks have had an effect on the company’s ability to recruit, but that distributor growth was still 13.3 percent in the third quarter. Short interest in Herbalife, Ramey pointed out, declined from 29.5 percent to 18.3 percent, another reason for optimism. The analyst also said the company has a healthy balance sheet and plenty of cash on hand.


Meanwhile, a source told CNBC Thursday that Ackman was preparing another major presentation on Herbalife at the Robin Hood Investment Conference in November. According to the source, the presentation will include new information that Ackman’s firm, Pershing Square, has uncovered, most of it coming from several former Herbalife employees.


Ackman restructured his position last month to reduce the risk of being caught in what Icahn referred to as the "mother of all short squeezes.”


At the time of this writing, Jim Probasco had no position in any mentioned securities.


Read more from Benzinga

12Comments
Nov 6, 2013 2:30PM
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It's the classic American tale: Pyramid scheme goes public, makes millions for savy investors, the rest of the world jumps on the bandwagon...then suddenly... poof, gone.
Nov 6, 2013 2:47PM
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This country was built on a pyramid scheme. What's new?
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The only thing shocking here is that Herbalife is still in business. I remember seeing infomercials for that pyramid scheme 20 years ago. The only difference between them and Amway is at least Amway had legitimate products.
Nov 6, 2013 3:39PM
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I am an Herbalife dist. and find that the all natural plant based vitiman supplements have been very beneficial for me and my customers, I don't activly recruit new dist., at this time. When my wife and I started 7 years ago  one of our friends mentioned "pyramid scheme" if that is true then so are other franchises, Burger King, McDonalds, Arbys, Taco Bell, Auto Zone and Subway to mention a very few, and my franchise fee is about $50.00 a year as opposed to thousands a year for the others. I also have the opportunity to make a lot of money and help other people get and stay healthy, depending on how hard I want to work. Finally Hebalife has been in business for at least 40 years and growing consistantly since they started. My question is, "how long has Mr.Ackman been in business and how many people has he helped".

 

Nov 6, 2013 3:13PM
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I've used Herbalife for decades (background in nutrition, biochemistry and more)... this is the way things were sold ages ago - Mary Kay, Avon, Vacuum Cleaners so on (if one is old enough to remember). 

Nov 6, 2013 4:27PM
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A pyramid scheme is what Madoff was running. You take from peter to pay paul. No products. Just lies. Herbalife has been selling real products for more than 30 years. Who is this Bill Ackman anyways? Doesn't even know the basics of a pyramid scheme. FDA.
Nov 6, 2013 3:13PM
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What's fraudulent is that giant hedge funds position themselves, use the media to present scare tactics then profit from it.  (Jim Crummer, stock scouter and a now closed hedge fund bud of Crummers (our emails and posts were monitored) (before name was changed) Hurb Greenburg, media - all owned by Dow Jones publications until all bought out by Murdoch).

 

He was giving a subpoena (all archived on the net) and head of SEC said "we don't do that".  Good companies can be destroyed in this manner and upstarts don't stand a chance.

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If the Chineese use it, you know its crap.
Nov 6, 2013 6:36PM
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FTC, SEC, PwC, State AG's, Health Departments in 90 countries all are aware of HLF's products and successful business model.
Ackman bought the idea of shorting HLF from the "Indago girls"the idea is not his. He doesn't even know what is and is not a legal MLM company. 
He never thought Ichan, Soros, Stiritz, Perry, Chapman, Ramey and others investors would bet on HLF's side...big mistake! 


Nov 6, 2013 2:31PM
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they are both wrong.  herbalife will flop within 30 years after doing ok for the next 20.
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