Bill Ackman says Herbalife is running out of new countries to sell its products, adding that this is only his second big short idea of his career. CNBC’s Kate Kelly also offers insight.
Talk of inflation has been swirling for some time amid all the stimulus that's been pouring into the market and the soaring debt levels in the U.S. The Federal Reserve has said that any inflation that does occur will be temporary, but one hedge fund macro trader says there are plenty of reasons not to Read More
the moment many of you have been waiting for. big ackman in new york city. guys, take it away, andrew. thank you. and mr. ackman, thank i for being here. sure. we have been watching the number of reports that kate kelly has been doing. we have a number of follow-up questions. the first know is about your short position in this country. when did you start the position, at what price, and when does it end? the reason i ask is because michael johnson, ceo has said publicly that he believes you have puts that expire on friday. sure. very clear, we own no puts on herbalife. we are short the stock, only. we are not short any other company in the industry. just herbalife. we shorted the stock, i would say, seven months ago or so, and we’ve had our position since then and have built it up over time. at what point would you consider the success in terms of getting out of the tion? success here, look, the company can survive in a middle grout. if it is found to be a pyramid scheme, it is a zero. at what point, if you succeed, you are donating money, by the way, to charity. you called it blood money. yes. i don’t want it make money o 06 of this. because — it is not a happy thing. all right? you’ve had millions of low income people around the world. who’ve gotten their hopes up that there’s an opportunity for them to become millionaires or hundred thousand-aires or something like that and they’ve been duped. one thing i’ve learned, particularly in short selling, if you go public, you can’t trust him. so by taking the economic part out of the investment and giving the money away, it is harder to make that argument. this presentation is much less, almost aimed at investors as it was aimed at the public. this was almost deceptive marketing, almost like a public safety presentation. correct. why not go directly to the ftc about this. oh we will. why not go to the ftc with this before going public? why not go to the scc with this before going public? sure. first of all we are in the investment business, not regulatory business. but secondly, we think the way to increase the way the regulators pay attention to the company is to make this a public issue. as importantly, everyday distributors, new distributors, new people are attracted into the scheme and we think the — you called it a scheme multiple times. yes. you really think it is a scheme in this sense. yes, of course. it is a pyramid scheme. scheme. pyramid scheme. do you look at other multilevel, like avon, am way, as pyramid schemes? no. i haven’t studied carefully amway or avon, but i think they are legitimate multilevel marketing companies. we aren’t saying all multimarketing companies are schemes, but some are. and herbalife is. we are simply trying to create transparency around the company, something they have done their best to muddle, so the market can decide the right price for this company. we don’t benefit by the stock going up or down. we’re not ditrading this. we are short the stock. how much communication did you have with herbalife prior to this presentation about your analysis? none, other than we listened to or read many times the conference call transcripts, analyst — you never went to them and said, look, this is our position. we have questions. we want answers. correct. why not. you saw what happens to — sinceid asked the calls on his conference call, they strictly cut the access for others. this is the most transparent we could possibly be. this is public presentation. the only people we didn’t allow is, the cfo called and said, can we be part of your presentation? we said no, this is our presentation. they sent people from herbalife and we had the assistant corporate secretary and other people in the audience, and they are able to participate. i don’t have a list yet who was on the webcast, but we will also make a recording available for people who missed it or can’t see it. i suspect anyone who cares about this issue will ultimately learn about it through both the public presentation and what comes after. there is already a lot of short interest in herbalife. have you discussed this idea with others, including david? no, i don’t know if dave sid short the stock. i really don’t. i’ve never spoken to david. we are the vast majority of the short in herbalife. one of the statistics of people owning the stock will come back and say, look, unsold product that herbalife sales only .5% of their sales come back. right. how can that be a pyramid scheme? if the answer is, if you can return the product, that would be a good answer. but you can’t return the product. they make it uneconomically or under their system illegal to return the product p.m. people that have any meaningful amount of product are people who are sales leaders. and sales leaders, every time they get a royck from the company, have to fill out a form, an affidavit that said, i’ve sold product — 75% of my product to people, you know, outside the system. in effect i have sold ten or more consumers. they don’t say if it is a tiny amount to the same ten people but they have to sign the affidavit. if they don’t sign the affidavit, they get the check. let’s say you move on from the scheme. let’s say they audit the compliance. give me a list of one of the companies you are required to. let’s saerbalife, you have kept a list of every consumers, name, address, amount and product. so the company says they have no idea what the ultimate sales are to consumers yet they can simply ask their distributor base, please provide the list of customers you have sold to. how much bottom line numbers would you contend are fraud. i think their accounting is — it is not that they are selling — that people aren’t writing a check to them to buy a product from them. this is an fraud them? this is a pyramid scheme. there is a lot that’s wrong with their numbers. and shane spent a lot — you spent a lot of time on that. re items called sales — when you say pyramid scheme, most people say — pyramid schemes are usually fraudulent and penalties are severe. let me ask you two other questions as part of this. did you participate or did anyone on your team participate as a distributor throughout this thing? no. we wanted to but we would have to sign the distributor agreement. we obviously con agree to that. so we did not. you have gone through lots of these battles before. mwia is one of them. an lot. this is really my second big short idea of my career. this is p somewhat dependent on the ftc taking action. if they don’t, what happens. i think the fdc will take hart look. i think the scc will take a very hard look. i think the new distributor will be better informed and this is where the media comes in. this is where, i don’t know how many distributors watch cnbc, i’m sure some do, but we have 50 plus members of the media here, much broader collection of the media like cnn, et cetera, that will reach to the community. think about a pyramid scheme — what would you say to those who would say you are trying to advertise yourself on one side of this. you are trying to manipulate the success of the company and therefore the stock price. we simply want the truth to come out. if distributors knew the probability of making $95,000 a year, which is the millionaire team as they call it, level, was a fraction of 1%, no one would ever sign up for this. and we simply expose that fact. the company has done their best to keep that from the public. the media exposes facts about things like pyramid schemes and ultimately conake their own decision. pyramid schemes themselves are inherently unstable. if this is a pyramid scheme, it lasted 32 years. why is that the breaking point? first of all, they are running out of countries. they are selling weight loss product. they are in ghana. countries in zambia. this is not where weight loss and digestives are big product. what do you expect we will hear from the company? i don’t know how they can respond. is there anything they can do right in the past year? no. everything i have seen about this company is simply been an affirmation of what we believed at the very beginning. we had a supposition at the beginning we were able to prove — why short it before doing research? we didn’t short it during — we concluded by may, or whatever we started shorting the stock, it was a pyramid scheme. we spent the next seven months putting together a presentation we felt comfortable to put in front of the world. one thing, i said in q and a that i think is not correct. they are buying back today. you think they are pushing up the stock? i think they are doing their best to support it. i don’t know who would buy it today at $35 a share. i do have to ask about jc penney, another high profile investment you have. do you have confidence in ron johnson? enormous company. what about the strategy that seems to have turned a little bit during the holiday season, moving more towards discounts than previously articulate et. sure. i have confidence in ron johnson, because he is a ceo. when the facts don’t work out the way he thought, he does something else. they had thanksgiving day sale, promotions during christmas. i suspect if we get good results from that, you will see mor that. could see more of that. yes. bill ackman, thank you for joining us. back to you guys. andrew, thank you very much. to kate kelly now because herbalife is responding and kate has late-breaking details on that. kate? thank you, sue. just to reiterate, response to ackman from herb al life. saying mr. ackman has prviously said to beware of companies. we asked to be part of the call today, he refused. his miss statements are mistakes are too numerous to address immediately. once again, michael johnson, their ceo yesterday, called claims being called bogus, add matly denied they are a pyramid scheme. sounds like we will hear more in the days to come. i wonder if they will address the issue ever buying back their own stock with which mr. ackman says they are doing today.