Pershing’s Square, Bill Ackman, has been building up expectations for the next presentation for his $1 billion Herbalife Ltd. (NYSE:HLF) short, and pushing Herbalife Ltd. (NYSE:HLF) stock even lower. Ackman teased saying that he has hundreds of hours of film and audio recordings and internal documents from former employees proving his argument that the company is a pyramid scheme. The expectations are extremely high as Ackman hinted at an Enron style scam in an interview yesterday with Bloomberg TV (see that transcript here). Ackman also stated on CNBC that today’s conference would be the biggest presentation of his lifetime.
Join us here for live coverage.
Ackman originally called for the presentation to begin at 10AM EST but he then pushed it up to 9:15AM – some people believe Ackman is pushing up the time because Herbalife Ltd. (NYSE:HLF)’s CFO is now scheduled to speak on CNBC at 9:15AM and Ackman did not want to be pre-empted.
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Herbalife Ltd. (HLF) – Bill Ackman Live Coverage (all times in AM and EST)
8:53AM The actual presentation by Ackman will begin at 10 – the reason the conference was moved up is to because Pershing will first have attendees watch the CNBC interview with Herbalife CFO, John Desimone.
9:30AM Herbalife CFO John DeSimone appeared on CNBC to defend his company, and has been invited back later today to respond to Ackman’s allegations.
9:45 CNBC has posted its interview with DeSimone, you can watch the full clip here.
10:00 Ackman begins, says that every ponzi scheme eventually collapses simply because it cannot expand forever, leaving most people on the bottom.
10:05 Ackman shows clip of Hempton comparing Herbalife to tobacco companies, calling them scumbags.
10:10 Ackman shows internal strategy documents demonstrating that Herbalife is targeting poor countries such as Mexico and Burundi where nutrition clubs allow it to penetrate lower ends of the market.
10:15 Ackman says that Herbalife management validated the DSO nutrition club concept that was first successful in Mexico and brought it to the US to specifically target Hispanic American communities, so far we’re still hearing the kinds of allegations we’ve heard in the past.
10:20 Ackman says that they investigated 200 nutrition clubs over the last two years covering the US, Puerto Rico and six other countries (not including China). You can also check out a recent press release from Herbalife on its business model here.
10:25 Ackman says he’s been investor in retail “for better or worse” many times and they do not grow exponentially (a reference to J.C. Penney losses). He also points out that you can’t put the Herbalife name on a nutrition club, which CFO DeSimone said was for channel protection.
10:26 The full presentation can be viewed live at the bottom of this post H/T ValuePlays
10:30 Ackman shows documents focused on duplication of training programs, creating new clubs, and bringing in new distributors instead of selling shakes.
10:35 Club 100 tells distributors to promise people that one day they will make the President’s Team, which they are calling an example of false income claims. President Team members are overseeing large numbers of Club 100 members in major cities.
10:45 Undercover investigator found that people will have to make large numbers of shakes as part of training or ‘school club,’ and they have to convince other people to buy those shakes as part of the process.
10:50 “This is a mini Herbalife pyramid breaking the product down into $4, $5” but Ackman says that the dynamics are the same. Herbalife takes a larger portion of people’s income, creating a sunk cost issue that makes people want to stay involved for longer. They argue that many people who aren’t distributors are trying to help other people become distributors, describing them as phantom customers.
“They’re selling the American dream to these people.”
11:00 They quote training document from a club saying that “Once you have reached 25 meals , you can become a daily school club. Then, others will go to yours, to learn and pay for their consumption.”
Again the presentation is arguing that the nutrition clubs are made up of people who want to open their own clubs, not real consumers.
11:10 Ackman says that some club promotions are a form of illegal unpaid labor, gives the example of free childcare along with shake purchases.
11:15 Ackman is playing tapes of Club 100 speakers appealing to people’s financial insecurity to recruit them. Recruits are told that if they follow the rules exactly (with classes, purchases, ‘homework’ etc) that they will succeed. Certification requires people to get at least 10 daily consumers at an upline distributor’s club.
11:20 Alleged problems with Club 100 tactics: relies on false income claims, recruits are told that they will get to the President’s Team or higher; also possible labor law violations, no specific warnings about cost of training, capital required, churn rate and so forth.
11:25 Presenters claim that the use of the word ‘university’ in Herbalife University is also illegal, Ackman says that trainees have achieved something incredible by making it through the process even though he says they’ve been defrauded.
11:35 In 2013 following Ackman’s attacks, Herbalife removed mentions of Club 100 from new club applications and started talking about Best of the Best training program which closely resembles Club 100. Ackman compares Club 100/Best of the Best to lead generation company Global Online that was shut down in Canada.
11:40 Universidad de Exito or Success University pioneered in Mexico by Eduardo Salazar, who Ackman says was killed by a double crossing hitman, one of the company’s largest distributors at the time. Enrique Varela and Graciela Mier were in his immediate downline and pioneered the Nutrition Club idea.
11:45 Herbalife is up 6% in intraday trading as much of what Ackman is presenting is a more detailed account of previous arguments. So far this is unlikely to convince any bulls to change their minds.
11:50 Ackman says that Herbalife sales in Venezuela may be part of a black market money changing scheme, because the company is still using official exchange rates instead of market rates.
11:55 Ackman estimates that half of Herbalife’s sales come from nutrition clubs, officially between 30% – 40%. He says that Herbalife is the best managed pyramid scheme in the world because he figured out how to tap the vast market of people living on $2 a day.
12:00 Without nutrition clubs, Ackman says that Herbalife will collapse. Herbalife execs have sold $22 million in shares in the last three months, compared to $1