Activist investor Bill Ackman said he will take his bet against Herbalife Ltd. (HLF:US) “to the end of the earth” even after losing as much as $500 million on the investment.
Ackman, whose Pershing Square Capital Management LP sold short at least 20 million Herbalife shares last year, was unapologetic about recently reducing the position. He stuck with claims that the company swindles unsophisticated consumers with false get-rich promises using overpriced products, such as vitamins, skin creams and meal-replacement shakes, that hide a pyramid scheme. He said he still is urging U.S. regulators, elected officials and community activists to help shut it down.
“This is not a trade for me,” Ackman said in an interview today with Bloomberg Television’s Stephanie Ruhle, after speaking at the media-free Robin Hood Investors Conference in New York. “We’re going to take this to the end of the earth.”
Herbalife has consistently denied Ackman’s claims.
“Mr. Ackman presented nothing new today,” Herbalife said in an e-mailed statement. “After a year of baseless claims about Herbalife and hundreds of millions of dollars of losses for his investors, the only thing Mr. Ackman has proven with his obsessive, ego-driven investing decisions is his lack of understanding of consumer-product companies.”
The dispute has gone public, spurring sometimes acrimonious clashes with other investors who back Herbalife, including Carl Icahn, Post Holdings Inc. Chief Executive Officer Bill Stiritz, George Soros, Richard Perry and Hayman Capital Management LP’s Kyle Bass. On the other hand, Whitney Tilson, who runs Kase Capital, has named Herbalife one of his favorite shorts, siding with Ackman.
“I continue to believe Herbalife has a great future, and in my opinion, many of the things Ackman says about it are simply the rantings of a sore loser,” Icahn said today in an interview with Bloomberg TV’s Trish Regan.
“What’s interesting here is all the people who are publicly long Herbalife are 80-year-old billionaires,” Ackman, who is 47, said in the earlier interview.
Icahn noted that whenever he or Ackman talks about Herbalife on television, the stock rises.
Herbalife, based in the Cayman Islands, rose 4.7 percent to $71.65 at the close in New York. The stock has more than doubled this year, compared with a 27 percent gain in the Standard & Poor’s 500 Index.
In the year since he first disclosed his Herbalife short position, Pershing has met with attorneys general and talks to various regulators weekly, and at times daily, Ackman said. He also said some foreign regulators have begun to focus on Herbalife’s business. Ackman didn’t offer specifics and said he did not know what, if anything, the U.S. Federal Trade Commission is doing.
Ackman’s Robin Hood presentation included testimonials from people who accuse Herbalife of deceiving emigrants into believing the company’s products can provide income, he said in the interview.
Icahn, Herbalife’s largest holder with a 17 percent stake, and Stiritz, the fifth-largest holder with 6.4 percent, have both said they would pursue talks with Herbalife and consider participating in a leveraged buyout.
Ackman, in the interview, dismissed the idea of a leveraged buyout, calling it “more opportunity for us to be short the company.”
“In order for the company to be taken private, they need to get audited financial statements,” Ackman said. “They need to be able to borrow money.”
Bet The Ranch
Stan Druckenmiller, who boasts one of the hedge-fund industry’s best long-term track records of the past three decades, said he invested in Herbalife in part because of Stiritz. He also was impressed by a custodian in his building who claimed to have lost 200 pounds on Herbalife products.
“Bill Stiritz is one of my heroes in investments,” Druckenmiller, 60, said in a separate interview with Ruhle. “One of the best fundamental investors in the world has bet the ranch on this and that’s good enough for me.”
Herbalife is taking too long to produce re-audits of its books, Ackman said. The audits should have been completed by now and if Herbalife misses a self-imposed deadline in December, the shares will fall, Ackman said. The nutrition company hired PricewaterhouseCoopers LLP in May after its previous accounting firm, KPMG LLP, resigned because of alleged insider trading by an auditor.
PricewaterhouseCoopers is re-auditing statements for 2010 through 2012. Herbalife Director Jeff Dunn, who runs Campbell Soup Co.-owned Wm. Bolthouse Farms Inc. and is a former Coca-Cola Co. president, said in mid-October that he expects a “clean read” when the re-audits are completed. Herbalife executives have said they expect the re-audits to be completed by the end of December.
In August, Ackman sent a 52-page letter urging the auditor to pay attention to “serious accounting and disclosure issues.”
Ackman today offered to pay for Herbalife to collect data from distributors proving whether the company earns most of its revenue from retail sales to outside buyers. The question is central to Ackman’s thesis and direct selling guidelines set by the FTC.
Ackman has dismissed third-party studies commissioned by Herbalife that say the majority of sales are indeed from outside buyers.
“They are required to sign a statement that they will keep two years of retail receipts and the company can request them at any time,” Ackman said of Herbalife’s distributors. “This data is available.”
Ackman also said today he was “definitely not” shorting J.C. Penney Co. stock and had no plans to do so, while accepting his share of the blame for the company’s struggles.
“I want to see J.C. Penney succeed, and I think Mike Ullman and the team there are working very hard to make it succeed. I was pleased to see the company reported a positive comp for October and I hope it becomes a very successful company.”
Ackman resigned from J.C. Penney’s board in August after his public campaign to push out the retailer’s chairman and chief executive officer was rebuffed by his fellow directors.
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