Monday, December 31, 2012

Bill Ackman's epic takedown of Herbalife

Activist investor and Founder CEO of Pershing Square Capital, Bill Ackman made public his short position in Herbalife, a company that sells weight management and nutritional supplements in USA, on December 19.

His massive short position is to the tune of 20 million shares that are borrowed to sell in the market, to the tune of $1 billion.
Herbalife's stock rises after initial fall

Bill Ackman delivered a 342 slide presentation, taking down the company and terming their business opportunities as a pyramid scheme that sells premium products through a wide chain of direct sellers. He explains how the company has no real advantage or premium over competing brands, and direct sellers earn more from 'recruitment' of other members than from commissions through selling the final products, weight management and nutrition supplements.

His attack grew intense as Pershing put together a site giving the real facts of Herbalife to internet users, and also targetted Google Ads, shown on the right.
Google Ads of Herbalife

It seemed like a one-sided battle (for Bill Ackman) but with his short position going into the third trading week, the stock is up 15% from its ~40% fall following Bill Ackman's presentations, and turning the battle between Herbalife and Bill Ackman into a fight between smart investors buying up shares (for a variety of reasons) and Bill Ackman.

The above is a classic case of publicly listed companies being taken to task by activist investors. Is there any incident in India that resembles the case? What is the fate of the Indian subsidiaries of likewise direct selling companies such as Herbalife and Amway? Do let us know and we'll post your view on the next blog post!

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