Activist investor William Ackman’s much publicized webinar on Herbalife, which he characterized as a ‘death blow’ to the company, turned out to be anything but. The company’s share price rose 25% yesterday, much of that rise coming during Ackman’s exhaustive 3-hour-plus presentation.
Ackman purported to show that Herbalife’s Nutrition Clubs business model is inherently fraudulent and violates labor laws. In his view Nutrition Clubs are a way to recruit new, mostly minority distributors who are tricked into continuing to buy products that they can’t afford in an effort to build their own independent businesses. Ackman said the ‘sales’ of products quoted by Herbalife are made up almost entirely of these sorts of purchases.
Ackman has taken a short position on Herbalife valued at as much as $1 billion. Starting in 2012 he embarked on a public information campaign that has really been unprecedented in US securities trading history to drive down the company’s share price. Ackman, who is the principal in the investment firm Pershing Square Capital, has by his own admission spent $50 million in his attempt to uncover damaging information on the company.
Even though the markets appeared to roundly reject Ackman’s thesis, the pressure he has brought to bear on the company has seemed to have borne some fruit. Herbalife is currently being investigated both by the Federal Trade Commission and the Federal Bureau of Investigation. Herbalife is the world's largest network marketing company devoted solely to selling nutritional products.