It was billed as the event that would deal a “death blow” to Herbalife. It was supposed to be “the most important presentation” in the career of William Ackman, the hedge fund billionaire who has pilloried the company for a year and a half and is betting against its stock.
However, on Tuesday, Ackman offered a marathon critique of Herbalife, the nutritional supplements company, that ended up being more of a visceral attack on anyone who disagrees with his contention that the company’s multilevel marketing model is a long-running and enormous fraud.
He compared Herbalife’s sales practices and tactics to those of Enron, the mafia, drug dealers and even Nazis. He lashed out at the company’s outside service providers, including auditing firm PricewaterhouseCoopers, which declined to comment. He even chided former US secretary of state Madeleine Albright, who has spoken at company events.
It seemed like Ackman versus the world.
However, in a punishing referendum, Herbalife’s stock price rose throughout the talk, climbing more than 25 percent by the end of the trading day.
Ackman said he did not mind, adding that he had spent US$50 million attacking Herbalife and would be proven correct.
“I’m an extremely, extremely persistent person. Extremely,” he said. “And when I believe I am right, and it is important, I will go to the end of the Earth.”
The presentation, which included a trove of documents, lasted more than three hours before a crowd of almost 500 people in a Manhattan auditorium. He used a similar approach to detail his US$1 billion bet against Herbalife in late 2012, and he has since released reams of documents and slides to bolster his case.
Ackman on Tuesday zeroed in on one particular aspect of Herbalife’s business: the nutrition clubs, unmarked storefront locations operated by customers who complete a training process and use the forums to sell diet shakes and other products. Ackman said that these clubs, which he said accounted for 40 to 50 percent of the company’s revenue, were “entirely fraudulent.”
He appealed to regulators, saying that if they clamped down on the nutrition clubs, the company would collapse.
“If you look at the great frauds of all time, Enron had that phantom trading floor,” Ackman said. “What Herbalife has, is it has phantom or fictitious customers.”
He presented a case that a significant percentage of Herbalife’s sales came from customers who are recruited to take part in an extensive training program to sell the products. Using what he said were internal documents, he argued that Herbalife, after finding its sales sagging a decade ago, embarked on a strategy to aggressively market its products to lower-income Hispanics living in the US, Mexico and Venezuela.
In response, Herbalife issued a statement: “Once again, Bill Ackman has overpromised and underdelivered on his [US]$1 billion bet against our company. After spending [US]$50 million, two years and tens of thousands of man-hours, Bill Ackman further demonstrated today that the facts are on our side.”
The company added that Ackman’s claim about the fraudulent nature of the nutritional clubs “is completely false and fabricated.”
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