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  • Epic Struggle on Wall Street for Future of Herbalife

    Bill Ackman thought he had found a genius idea for a new investment model. All he had to do was take a massive short position, to the tune of $1 billion, on a successful company and then do everything in his power to try to destroy it. Ackman did just that to leading nutrition and weight management company, Herbalife Nutrition. But even with the many lobbyists, attorneys and government cronies Ackman has sicked on Herbalife; the company continues to rise above his desperate attempts to put personal profit over a 37-year-old company that employs thousands of people.

    In 2004 Ackman partnered with Leucadia National to form hedge fund company, Pershing Square Capital Management. Since forming his company, he has made similar unsuccessful attempts to manipulate McDonald’s and Wendy’s stock prices. This last March, in his biggest loss to date, Ackman had to admit Pershing Square made many mistakes and were forced to bail out of Valeant Pharmaceuticals incurring nearly a $4 billion loss.

    It’s been almost five years since Ackman started his campaign to bring down Herbalife. During this time he has made numerous claims that the company’s sales were being artificially inflated because they included distributor sales rather than actual consumer demand. But once again Ackman has been left with egg on his face. A recent company report announced that 90 percent of Herbalife’s U.S. sales in May were from customer purchases — And they have the receipts to prove it.

    Ackman has been trying to push the theory that the majority of sales are to the middle men distributors that sell the company’s product. However, in May 2017 there were more than three million end user retail transactions; this number far exceeds the 80 percent documented sales threshold that the Federal Trade Commission (FTC) called for in their agreement with Herbalife.

    In an attempt to address the false allegations Ackman has repeatedly hurled at Herbalife, a new membership accounting process was put into place. There is now a differentiation between product distributors and “preferred customers”  that buy products at a discounted price. Since making this change, more than 400,000 members have registered as end user customers. So that’s 400,000 registered members and three million in receipts in just one month. These statistics should be evidence enough that Ackman’s assertions that any changes made to the Herbalife business model would prove there weren’t enough end user customers to validate their business model are just flat-out wrong.

    It’s time for Ackman to accept that he was wrong about Herbalife. He put a lot of money into his lobbying efforts, and all he ended up with was a two-year investigation by the FTC that ultimately resulted in the committee affirming Herbalife’s business model. Ackman came out the loser, and Herbalife came out the winner. As a result of the FTC investigation, Herbalife implemented new industry-leading operating standards that clearly demonstrate that the company will continue to grow and prosper. As a matter of fact, it even rocketed past Wall Street’s expectations adding over $700 million in first quarter earnings  results this year.

    Perhaps Ackman should look to one of his competitors for inspiration to get Pershing Square Management back on track. Billionaire investor, Carl Icahn, owns more than 22 million shares or a 23% stake in Herbalife. But, unlike Ackman, Icahn believes it’s better to bet on Herbalife’s success rather than trying to bring about the company’s demise.

    Carl Icahn’s firm, Icahn Enterprises, has made it its mission to invest and profit from successful and start-up corporations. By example, he has partnered with Herbalife to build up the company and improve its management team. This business model has served Icahn well over the years amassing a $16.3 billion net worth according to Forbes.

    Ackman, on the other hand, has seen his fortune dwindle over the last few years. According to Forbes, his investments have generally hurt his bottom line. At his height he was worth $2.6 billion in 2015 but due to a series of bad decisions that number has been sliced in half, down to just $1.3 billion. Things don’t look any better regarding Ackman’s hedge fund company. His main fund, Pershing Square International, fell 10.2% in 2016, while his publicly traded Pershing Square Holdings saw a net asset value drop of 13.5%. Before long, Ackman is likely to lose his billionaire status and will have to return to being just a measly multi-millionaire.

    Ackman’s billion dollar bet against Herbalife is clearly just one more in a series of bad calls. It’s time for Ackman to get it through his head that his economic Schadenfreude is only bringing him and his clients down and throwing away their money. Contrary to his campaign of fake news, Herbalife will continue to grow and provide great products to real customers looking to improve their health.


    Drew Armstrong

    Drew Armstrong

    Drew Armstrong is a 2015 graduate of California State University in Fullerton. He currently resides in Orange County, California and writes political insights for a national audience as viewed from the current generation.

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