The stock price of Herbalife Ltd. (NYSE:HLF) surged more than 25% to $67.77 per share on Tuesday, its highest single-day gain in its history.
Some people were anticipating that the stock would decline as activist investor said his latest presentation will expose the incredible fraud committed by the multilevel marketing company (MLM) selling nutrition and weight loss products.
Yesterday, Ackman said Pershing Capital Square Management has “hundreds of hours of internal video” and “some internal documents” provided by some employees of the company that will bring Herbalife Ltd. (NYSE:HLF) to its knees. “This will be the most important presentation that I have made in my career. We won’t disappoint,” said Ackman.
Ackman’s latest attack
It is clear that the activist investor’s supposed “death blow” strike against Herbalife Ltd. (NYSE:HLF) failed to knock it out. Ackman reiterated his accusation that Herbalife is a pyramid scheme with “phantom, fictitious customers.”
According to him, the company’s nutrition clubs are mini versions of its broader pyramid scheme. He emphasized that his firm’s undercover investigators found that the nutrition clubs are intended for the recruitment and training of new distributors. Ackman said, “This is a mini-Herbalife pyramid. They are not selling weight loss in these clubs; they are selling a business opportunity.”
Ackman also accused Herbalife Ltd. (NYSE:HLF) of violating labor laws with its nutrition clubs citing the reason that everyone are working for free. He added that the nutrition clubs are money-losing business because each club loses $12,000 a year on an average. He pointed out that the people running the nutrition clubs are not bad people, and it is a tragedy because they are not aware that they are being defrauded.
During his presentation, Ackman also emphasized that the management of Herbalife Ltd. (NYSE:HLF) manipulated the American Dream. At this point, the activist investor became emotional as he narrated the humble beginnings of his own family as immigrants, and he is a “huge beneficiary of this country” as his grandfather and father were fortunate to achieve the American Dream.
Furthermore, Ackman said, “The American dream has been tarnished in a lot of different ways…but when you have a New York Stock Exchange company specifically targeting people and using the American Dream principles … they sell the American dream. It’s criminal. Unfortunately, it’s taking the regulators too long.” He added that it is time to shutdown Herbalife Ltd. (NYSE:HLF). He believes the company is a travesty and a tragedy.
Herbalife’s response
In response to the accusations, Herbalife Ltd. (NYSE:HLF) said “Ackman over-promised and unde-delivered on his $1 billion bet against the company.” The company added the activist investor further demonstrated that the facts are on its side today after spending $50 million, two years and tens of thousands of man-hours.
Herbalife Ltd. (NYSE:HLF) also emphasized that it will continue to focus on its mission to bring good nutrition and economic opportunities to communities worldwide. The company further stated, “We recognize that he is running out of time to make good on his bad bet against Herbalife, with the equivalent of 25.7 million shares in put options that expire on January 17, 2015. Today is evidence that Bill Ackman will not succeed.”
