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Ackman Issues Status Update On The One Year Annivesary Of His Herbalife Ideological Obsession

Tyler Durden's picture





 

It was nearly three months ago when we warned that Ackman's latest strategy of converting 40% of his Herbalife short exposure into puts would massively backfire, first because he still have major short squeeze potential left on his books, and second because now he is subject to theta or a time horizon, for his thesis to play out. Ackman's (il)logic was summarized as follows: "The explanation of being forced out of nearly half of his position is amusing: "we minimize the risk of so-called short squeezes or other technical attempts by market manipulators to force us to cover our position." So Ackman is forced out by his Prime Brokers so as not to be forced out by market manipulators? That's an interesting explanation for what is a far simple situation: booking your paper losses." Just under three months later HLF hit its all time highs, and Ackman's puts (not to mention his stock short) have generated material losses.

Back then we concluded that "with trades like this, which has now become an ideological obsession and moved beyond and semblance of rational investing (any normal person would have pulled the plug on the nearly half a billion dollar losing trade long ago) and is rapidly morphing into a replica of Pershing Square IV, said career may not be too long." Today, the embattled so-called retail expert pours more fuel in the futre, and provides a 7-page update on what his plans for Herbalife are. In short: it really does seem that Ackman is prepared to take his HLF short until the end of the world...  or its LBO. Whichever comes first.

From Pershing Square:

It has been one year since our December 20, 2012 Herbalife presentation. In light of the passage of time, recent developments, and questions we have received, I thought it would be useful to review this investment and our approach year-to-date.

ZH: readers can catch up on how one hedge funds can lose over half a billion on one trade at their own leisure in the letter below.

Two recent developments, a Belgian appeals court decision and the recent completion of the Pricewaterhouse reaudit, have been mischaracterized by analysts and misconstrued by the market. When combined with the false rumor that Pershing Square has quietly capitulated on its position, these developments have caused the stock to rally to new all-time highs.

ZH: Uhm, no. What has propelled the stock to all time highs is the audit, the increasing probability of a major debt-funded stock buyback, or, worse for Ackman, an LBO, as well as the fact that while one may allege the company is a ponzi scheme, it is a cash flow generating ponzi scheme, something which in the Old Normal school of investing was the only thing that mattered. And as long as HLF continues to generate cash, the stock will continue to rise.

It gets better:

Beginning in early January and up until the present, we have been contacted by a number of former Herbalife employees who have shared with us additional information that confirms the illegality of the Company’s business practices. We have also communicated with hundreds of former Herbalife distributors who have shared their stories of being seduced into the so-called Herbalife “business opportunity,” and manipulated into spending thousands, and often tens of thousands, of dollars on the false hopes of financial success as a distributor.

 

We have chosen not to disclose this information publicly in order to allow the regulators the time to do their own investigations and analysis. For this reason, at the recent Robin Hood investor conference, we were careful to limit our presentation to disclosures which would not interfere with ongoing regulatory activity. Our Robin Hood presentation described the SEC’s recent investor alert which identifies seven hallmarks of a pyramid scheme and an Herbalife victim video made by Make the Road, a well-regarded Latino advocacy organization.

 

While we believe that our approach has been successful in garnering significant regulatory interest, there has been a substantial short-term economic cost to Pershing Square due to our silence. Because Pershing Square has a reputation for doing extremely thorough research, Herbalife investors incorrectly assume that we have disclosed everything negative we know about the Company’s business, particularly in light of the more than 300-page original presentation. While the original presentation was certainly comprehensive, we limited it to an introduction to Herbalife and only those facts and issues that we could prove at the time, with a plan to present additional information in future presentations as we completed our research.

ZH: Ah, ye olde "we know stuff, but we won't disclose it until the right time" bluff. Does that include spurious, unfounded leaks to the NY Post? Or maybe Ackman's losses have to hit $1 billion, $2 billion or more on HLF before he decides that the time has come and to unleash this torrent of evidence that would crater the stock once and for all. Either way, brilliant strategy. Just keep accumulating all that uber top-secret damning stuff.

And the punchline of all punchlines, when Ackman talks about the biggest risk to Pershing Square: a levered recap:

While a recap would facilitate the exit of large illiquid shareholders, we believe that it would destroy rather than create shareholder value. As a result, we would welcome a recap which would have the ancillary benefit of the creation of a CDS market where we could more efficiently effectuate our investment at greater scale, at lower cost, and with less risk.

ZH: So.... you are saying there is shareholder value here? Which is a little contrary to the original thesis that said the value of Herbalife is $0. Which is it?

* * *

It goes on. For those who want more amusement on this slow news day, here is what Ackman "plans to do going forward"

In one or more future presentations and/or other communications, we will be describing our analysis and conclusions from the last 12 months of our investigation including information we have obtained from former Herbalife employees, a number of whom have sought whistleblower status with regulators. Our next presentation, among other issues, will include an analysis of the three principal sources of revenue growth for the Company: Internet-based Lead Generation, nutrition clubs, and the Company’s China operation.

 

We will show that the Company’s decade-old Lead Generation recruiting methods promoted by Herbalife’s top distributors, which were ostensibly prohibited by Herbalife beginning on June 30th – several months after we shared the details of this business method with the FTC, SEC and several State Attorneys General – continue to this day.

 

We will show that nutrition clubs, which the Company has suggested demonstrate “daily consumption” for products principally from the Latino community, are in fact recruiting venues to attract low-income distributors who do not have the $3,000 required to become an Herbalife supervisor.

 

We will show how Herbalife’s Chinese operation likely violates the multi-level marketing restrictions in that market. We will share data that will enable investors to understand the extremely high distributor failure rates in countries around the world, providing additional evidence of the deceptive nature of what Herbalife management calls “The Best Business Opportunity in the World.”

 

Finally, we will focus on the plight of the Herbalife victims and share their stories in their own words.

 

We continue to believe that our Herbalife short position offers an extremely compelling, and, as now structured, even greater asymmetric payoff than before because of the stock price’s substantial rise.

Unfortunately, there was no update in Ackman's letter how many investors in his fund have pulled money as a result of the concerted strike back effort of Herbalife and Moelis to convince LPs to pull their capital from the hedge fund with a seemingly unperturbable ideological crusade.

Full letter below:

 


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Mon, 12/23/2013 - 15:28 | Link to Comment ebworthen
ebworthen's picture

The rest of Wall Street loves Herbalife because it's a pyramid scheme, something near and dear to their hearts.

Ackman's trying to smack one of the Godfather's Nephew's upside the head and say he's no good.

Ooops.

Mon, 12/23/2013 - 15:55 | Link to Comment Cult_of_Reason
Cult_of_Reason's picture

I had a diner with someone who happened to be working in Herbalife management office, and that person told me "Herbalife is a pyramid scheme and the management knows it."

Why the heck is this pyramid scheme allowed to exist? I'm suspecting a political connection.

http://www.ftc.gov/about-ftc/biographies/edith-ramirez

Disclosure: I'm not a fan of Ackman and have no positions in Herbalife.

Mon, 12/23/2013 - 15:53 | Link to Comment william114085
william114085's picture

do you still own the diner?

Mon, 12/23/2013 - 16:07 | Link to Comment Cult_of_Reason
Cult_of_Reason's picture

No, I've sold the diner after this birthday dinner party.

Mon, 12/23/2013 - 16:20 | Link to Comment Obchelli
Obchelli's picture

I don't know but for some reason I sympathise with Ackman may be cause same BS is happening in US Stock market as a whole. S&P ponzi index keeps marching up in face of deteriorating economy with lies and false numbers put ahead with ever changing rules how GDP is calculated (Always skewing it into positive direction)

Mon, 12/23/2013 - 17:06 | Link to Comment Cult_of_Reason
Cult_of_Reason's picture

This political connection is what Zerohedge (and MSM) should be reporting about (it took me 3 minutes to research).

FTC Commissioner Edith Ramirez Named by Obama as Chairman http://www.bloomberg.com/news/2013-02-28/ftc-commissioner-edith-ramirez-...

"Ramirez was appointed by Mayor Antonio Villaraigosa.." http://www.kelleydrye.com/publications/client_advisories/0800

Herbalife hires former L.A. Mayor Antonio Villaraigosa as advisor http://articles.latimes.com/2013/sep/05/business/la-fi-villaraigosa-herb...

Connect the dots (FTC and Ramirez, Ramirez and Villaraigosa, Herbalife and Villaraigosa), it is so obvious (and Icahn, and Soros knew about this connection), and this is why there will be no action against Herbalife (pyramid scheme) by the current FTC.

Mon, 12/23/2013 - 18:54 | Link to Comment Make_Mine_A_Double
Make_Mine_A_Double's picture

You knocked that one over the wall in center field + 1.

I think it's well under the Herb is a pyramid. I guess sign of the times we live in that not only can it continue to do business in board daylight, but also as a vehicle to game the market with - also in board daylight.

Things like this lead me to conclude that we are at the top and just waiting for an x (external) factor to blow this house of cards down.

Mon, 12/23/2013 - 15:43 | Link to Comment Divided States ...
Divided States of America's picture

It takes fraudulent people (Wall Street) to like Ponzi or Pyramind Schemes (Herbalife), thats not a big surprise or how the hell are they suppose to sucker the sheeps into the slaughterhouse.

But honestly, why is ZH pissing on Ackman 24/7...Honestly I dont like the guy (Hes a tribe member also) but I dont like the senile fuck Carl I CAN TWEET Icahn either (one of the chief tribal leaders)

Leave the guy alone already or at least stop posting this useless update on this Soap Opera between Jewish Hedge Fund Managers.

Mon, 12/23/2013 - 15:41 | Link to Comment sbenard
sbenard's picture

My sentiments exactly! Ten thumbs up!

Mon, 12/23/2013 - 15:40 | Link to Comment TheLooza
TheLooza's picture

One day Ackman will be vindicated ...  Long after he is broke and out of business.

Mon, 12/23/2013 - 15:42 | Link to Comment sbenard
sbenard's picture

I don't understand the obsession with Ackman.

Mon, 12/23/2013 - 16:24 | Link to Comment Dr Benway
Dr Benway's picture

Yeah, exactly. The obsessive animosity againt Ackman on ZH, seemingly not concerned with the actual merits of his Herbalie thesis, is only matched by that against Tilson. Would love to know the backstory here!

Mon, 12/23/2013 - 15:42 | Link to Comment TideFighter
TideFighter's picture

Herbalife people used to be Life Insurance salespeople, once you bit upon your family, nobody else to pitch to.

Mon, 12/23/2013 - 15:43 | Link to Comment Chief Falling Knife
Chief Falling Knife's picture

I still have a hard time with the idea Ackman shorted when HLF was something like $45-48, then he didn't cover any of it when the stock dropped to $25?  He didn't have any 'oh shit.. reassess' moments when it went back up to $35-40? 

Mon, 12/23/2013 - 16:09 | Link to Comment Mugatu
Mugatu's picture

Delicious! All these so called "smart men" getting killed on trades.  Ackman, Schiffer, and Einhorn have made mistakes that first year traders never even make.  

Saying your right does not work - the price tells you if you are right.  If you hang on too long on losing trades you get Herbalifed! 

Mon, 12/23/2013 - 17:06 | Link to Comment ebear
ebear's picture

your first loss is your best loss

Mon, 12/23/2013 - 16:30 | Link to Comment Dr Benway
Dr Benway's picture

"it is a cash flow generating ponzi scheme, something which in the Old Normal school of investing was the only thing that mattered"

This shows a profound lack of understanding of what a ponzi scheme is. Every ponzi scheme generates cash flow as long as it attracts new sucker investor inflows. And no, this is not all that matters at all.

Mon, 12/23/2013 - 16:56 | Link to Comment PC Load Letter
PC Load Letter's picture

It's one thing having conviction in an investment thesis, but at this point he is just showing his arrogance by not protecting his investors. How the hell can you allow your losses get to this level?

Mon, 12/23/2013 - 17:36 | Link to Comment cassotto
cassotto's picture

why are there so many jew haters here? i find it quite scary

successful folk are lauded, oh but wait when it's a jew there is always someone who feels the need to point that out, with the obligatory acrid remark

Mon, 12/23/2013 - 18:03 | Link to Comment Papasmurf
Papasmurf's picture

Ackerman is toast.  By now, between the two of the,  Icahn and Soros own 110% of outstanding shares.   

Mon, 12/23/2013 - 18:45 | Link to Comment EARLPEARL
EARLPEARL's picture

ackman said the stock was going to zero..well he has been right 5 times...first it was 4 zero then 50 zero, then 60 zero then 70 zero now 8 zero..will soon be double zero with a 1 in front of it.

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