Ackman misfires on Herbalife "death blow"

(USA TODAY) - If billionaire hedge fund manager Bill Ackman expected to deliver a "death blow" knockout to nutritional supplements marketer Herbalife, Wall Street wasn't in his corner Tuesday.

Shares of Herbalife are up 15% to $61.94, despite a protracted livestream Internet presentation at which Ackerman again attacked Herbalife for its business practices and charged that the company is essentially a pyramid scheme with "phantom, fictitious customers."

Ackman, head of Pershing Square Capital Management, disclosed details of his latest investigation into more than 240 Herbalife clubs during a webcast at the AXA Equitable Center in New York. The company is targeting Latinos and other lower-income socioeconomic groups looking to become entrepreneurs.

Ackman's presentation - viewed by more than 10,000 on line - is the latest salvo in his $1 billion bet against Herbalife in December 2012. But after Ackman told CNBC Monday that Tuesday's presentation would deliver a "death blow" to Herbalife, investors reacted to the on-going high drama like he had pulled his punches.

Several well known investors, including George Soros and Carl Ichan, who holds a 17% Herbalife stake, have bet against Ackman. And by mid-day Tuesday, Herbalife had recouped Monday's 11% loss.

The first hour of Ackman's presentation focused on Herbalife's use of nutritional clubs to lure customers and acquire free labor.

"Herbalife has phantom or fictitious customers," Ackman said during the webcast, adding that many are uneducated trainees working without pay in the hopes of landing a job as a club distributor. "It's a tragedy. They don't realize they're being defrauded," he said.

To explain how it works, he turned to Christine Richard, a former Bloomberg News reporter who's now working for Ackman's group.

"What they're selling is smoke and mirrors," she said, adding that trainees expect they're investing in an education that will reap a good income. She said they're turning "fake club traffic" into customers.

She said the trainees, before distributing the products to others, have to pay for the classes and for the shakes they're required ton consume. They need to bring in at least 10 new customers.

"It's the beginning of a treadmill" that keeps people at the clubs, Richard said, adding that many trainees do not get certified despite more than a year of consuming and distributing shakes and spending at least $3,000 of their own money on the products. Once certified, she said they then need to work to qualify once again.

Ackman said the practice "creates this tendency to want to stay, because you're almost going to make it."

Herbalife responded earlier on Twitter account @HerbalifeTRUTH – a company account dedicated to information about its high drama conflict with Pershing Square.

"We're confident in the integrity of $HLF & that the truth will prevail," the company said.

Herbalife was founded in 1980 and specializes in protein shakes, vitamins and dietary supplements intended to aid weight loss and improve health.

Earlier, Herbalife said Ackman's information "cannot be trusted" and his attack "lacks any impartiality or accountability." The company said his attack is "an attempt to manipulate Herablife's stock price for Pershing Square's financial gain....The overwhelming majority of our members have been very satisfied, and we are proud of that record."

"Herbalife is a company about great products and great company," said CFO John DeSimone in a statement. "We are proud of the tireless efforts of our millions of members around the world and know that their passion is what makes Herbalife the incredible company it is today."


 


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