Ackman’s crusade against Herbalife—in plain English

The recent $200 million Herbalife settlement leaves us with some open questions

Herbalife

The recent $200 million Herbalife settlement leaves us with some open questions about how Herbalife will do in the stock market and what Bill Ackman will do with his short position.

In case you’re not entirely familiar with the concept, a short position is when a broker sells you a stock that they do not yet own. The broker is betting against a particular company, in this case Herbalife. The broker sells you “borrowed” stock at say $50 a share. They are betting that the stock will drop below $50, at which point they will actually buy the stock, at say $40. The broker then makes the difference of the $10 per share; you paid $50 and the broker paid $40. To put it simply, the broker—in this case Ackman—is betting that a company’s stock will decrease in value.

As of July 29, 2016, the stock price for Herbalife is up to 68.15 which is a positive 1.72% change. If you look at the past year, the stock price dropped in January of 2016 then gained over the last six months (up 47.22%). The recent settlement with the FTC coincides with another boost to the stock price. It seems that the market perception of this settlement is that it shows the FTC does not see Herbalife as a pyramid scheme.

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Breaking Herbalife News: NOT Found To Be Pyramid Scheme!

Herbalife Will Restructure Its Multi-level Marketing Operations

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Multi-level marketer Herbalife will pay $200 million back to people who were taken in by what the FTC alleges were misleading moneymaking claims. But when it comes to protecting consumers, that may not be the most important part of the just-announced settlement. What could matter more than $200 million? An order that requires Herbalife to restructure its business from top to bottom – and to start complying with the law.

“This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit,” FTC Chairwoman Ramirez said. “Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices.”

For example:

  • The company will now differentiate between participants who join simply to buy products at a discount and those who join the business opportunity. “Discount buyers” will not be eligible to sell product or earn rewards.
  • Multi-level compensation that business opportunity participants earn will be driven by retail sales. At least two-thirds of rewards paid by Herbalife to distributors must be based on retail sales of Herbalife products that are tracked and verified. No more than one-third of rewards can be based on other distributors’ limited personal consumption.
  • Companywide, in order to pay compensation to distributors at current levels, at least 80 percent of Herbalife’s product sales must be comprised of sales to legitimate end-users. Otherwise, rewards to distributors must be reduced.
  • Herbalife is prohibited from allowing participants to incur the expenses associated with leasing or purchasing premises for “Nutrition Clubs” or other business locations before completing their first year as a distributor and completing a business training program.

URGENT >> BULLETIN >> MOVING: Herbalife Must ‘Fundamentally Restructure Its Business,’ FTC Says In Settlement Announcement; Agency Brings Complaint In Federal Court That Alleges ‘Deceptive And Unlawful Acts And Practices’

FTC Brings Complaint In Federal Court That Alleges ‘Deceptive And Unlawful Acts And Practices’

PatrickPretty

URGENT >> BULLETIN >> MOVING:  (13th Update 3:45 p.m. EDT U.S.A.) The FTC is going to federal court in the Central District of California, alleging that Herbalife engaged in “deceptive and unlawful acts and practices.” Separately, the agency announced a settlement with the company that will have Herbalife pay $200 million and change the way […]

The post URGENT >> BULLETIN >> MOVING: Herbalife Must ‘Fundamentally Restructure Its Business,’ FTC Says In Settlement Announcement; Agency Brings Complaint In Federal Court That Alleges ‘Deceptive And Unlawful Acts And Practices’ appeared first on PatrickPretty.com.

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MLM Attorney, Kevin Thompson, on Bloomberg TV Responding To Herbalife Questions

This article first appeared on The MLM Attorney Blog! KT_portrait-300x289

I had the privilege of being on Bloomberg for a small segment talking about Bill Ackman’s latest presentation. The 7-minute segment can be viewed above. Ackman’s presentation today, if you can spare 3+ hours, can be found here. Before summarizing his argument, it needs to be said that he heavily promoted this presentation yesterday across the news. He was like Muhammad Ali talking about the Thrilla in Manila, saying that this was “the most important presentation of his life.” He further said that this would be the “death blow” to Herbalife. He successfully spooked the market, causing it to drop 11%. Instead of “conclusively proving fraud,” which was his intent, he ignited confidence in the market due to the lack of substance, causing the stock to go up 25% in one day. I’m not making this up. Up 25% the day of the death blow. Only on Wall Street. I’ll summarize his thesis:

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The Real Reason Bill Ackman Is Grandstanding And Calling Herbalife A Pyramid

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Terry Keenen over at the NY Post wrote an interesting article on Ackman’s real reason for shorting Herbalife and grandstanding on his knowledge of why Herbalife is a pyramid. Well this is sure different from the consumer protection reason Ackman has claimed. To see all MLM Help Desk has written on this subject click here.

Herbalife

 

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Ackman’s got his Johnson shorts in a bunch

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In the mind-numbing battle between hedge-fund superstarsBill Ackman and Dan Loeb over the future of the multilevel-marketing health-supplement company Herbalife (Ackman is shorting the stock; Loeb is going long), there is one constant: The bull market in hubris is alive and well on Wall Street in 2013.

Bets on whether Ackman’s confidence is justified, or pure arrogance, determine the direction of Herbalife shares these days and define the script for Wall Street’s newest and most compelling soap opera.

Although both the Herbalife longs and shorts can make a thoughtful case as to whether the 32-year-old company is a pyramid scheme or not, those who are betting against Ackman’s death-star scenario (including Loeb and veteran investor Carl Icahn) by buying its shares no doubt have Ackman’s ego in mind.

Here’s the quick 411 on Ackman and why he generates so much ink.

In 2011, his fund was down a bit (after fees). Were it not for the paper gains from his 11th-hour grandstanding that he was shorting $1 billion worth of Herbalife shares, Ackman’s 2012 returns would have been significantly below par.

More embarrassing still, Ackman’s embrace of JCPenney stock and company chiefRon Johnson have left egg on his face and red ink in his fund.

Perhaps not surprisingly, Penney shares continue their slide in 2013, pulling Ackman’s returns down along with them. So far, the stock is down 7 percent this year; Ackman’s Pershing fund owns about 39 million shares. Meanwhile, Herbalife shares are up 21 percent on the year — ouch!

Right now, the smart money on Wall Street and in the hedge-fund world is rooting for Loeb.

Indeed, as last week played out, it appeared that Ackman has sided with the wrong CEO named Johnson. While Ron Johnson’s JCPenney continued to crater, Michael Johnson’s Herbalife shares rallied. Could it be that Ackman, who fashions himself as a sort of retailing savant, ended up shorting the wrong stock? All of Wall Street will be watching.

terrykkeenan@gmail.com

Herbalife News: Herbalife CEO Michael Johnson Plots Bill Ackman & Pershing Square Hedge Revenge

Herbalife CEO Michael Johnson

I wrote about Bill Ackman’s possible $ 1 Billion Dollar mistake last Friday (Read Here). On January 5th 2012, Michelle Celarier over at the N.Y. Post wrote a great article covering what Herbalife’s “badass CEO”, Michael Johnson is planning for this weeks investor meeting.

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Herbalife CEO plots Ackman hedge revenge

Watch your back, Bill Ackman, Herbalife’s “badass” CEO is coming after you.

Michael Johnson, after seeing shares in his 32-year-old weight management and nutritional supplement distribution company tumble nearly 40 percent after Ackman publicly labeled it a pyramid scheme, is planning to return fire this Thursday.

In an anticipated investor meeting in New York, Johnson, sources told The Post, is likely to wheel out a former Federal Trade Commission regulator — along with a point-by-point rebuttal of Ackman’s plan.

In addition, Johnson, who has been the top dog at Herbalife for a decade after a 17-year career at Disney, could use the company’s connection with former Secretary of State Madeleine Albright to boost its bona fides.

Albright’s advisory firm, Albright Stoneridge Group. has been a consultant to Herbalife since 2008.

Johnson tried to woo Albright to the event — but her firm said she is not going to attend the meeting. Still, her role enhances the firm’s reputation.

The December battle between Ackman and Herbalife — which resulted in $1.8 billion of value being wiped out — captivated Wall Street as Ackman, one of the best-known hedge-fund managers, hit CNBC, Bloomberg TV and other media outlets to publicize his theory.

Herbalife is “the best-managed pyramid scheme in the history of the world,” Ackman crowed.

The New York activist, who has shorted more than 20 million shares of the Cayman Islands-based company, said he expects regulators to eventually shut down the company — and for the shares to hit zero.

The founder of $11 billion Pershing Square Capital told The Post he has not covered nor hedged his short.

Ackman’s certainty has made Johnson’s Thursday morning performance even more important.

Critics of Ackman have already started to pounce.

They say his comments are nothing new. Defining a pyramid scheme is “a very gray area,” said analyst Michael Swartz of Suntrust Robinson Humphrey, noting that the FTC has looked at the company but not acted in Herbalife’s 32 years of existence.

“But when Ackman gets up on a podium, it carries more weight than the average investor,” he added.

Ackman’s power with other investors riles hedgie Bob Chapman, a longtime Ackman foe who recently, after trying Herbalife protein shakes, became an even bigger believer in the company.

Chapman called Ackman “the PT Barnum of hedge funds.”

Chapman thinks Ackman, whose hedge fund he admits has been “extremely successful,” may have met his match in Johnson. Chapman called the Herbalife CEO “a singular American badass” for his aggressive tactics.

Eventually, these critics think Ackman will be forced to cover his short. Herbalife announced a $950 million share-buyback program, which it won’t be able to start until after it announces earnings.

Already, Herbalife shares have popped 42 percent since bottoming out at $26.06 following Ackman’s onslaught — but are still off about 50 percent from the first shots taken at the company by Greenlight Capital’s David Einhorn in a May investor call that triggered a Securities and Exchange Commission inquiry that went nowhere.

Ackman says his “smoking gun” is that the company’s “so-called earnings disclosure statements for the distributors are false and materially misleading.”

Most of the distributors’ income comes from recruiting other distributors, he said, adding that 93 percent of the distributors make no commissions.

Ackman said he is prepared to wait it out, and he can afford to do so. “After all, it took five years for our work on MBIA [the bond insurer he shorted] to be recognized by the market,” said the money manager. “ I think it will take a lot less time here.”

mcelarier@nypost.com