Herbalife Ltd. (NYSE:HLF) says that activist investor Bill Ackman’s presentation reflects his “continued failure to fundamentally understand” its business model. The company also said in its press release that it would keep collaborating with China’s government to ensure that its business model operates within the country’s laws for direct selling.
Herbalife: China business model is unique
In Tuesday’s presentation, Ackman drew comparisons between the percentages Herbalife Ltd. (NYSE:HLF) uses in determining how much it should pay distributors. He used the company’s financial statements to suggest that it uses the same business model in China that it does in the rest of the world. He also listed several ways in which the experts he hired said Herbalife is operating in violation of Chinese laws regarding direct sales.
However, Herbalife Ltd. (NYSE:HLF) maintains that it has a different business model for its China operations. The company said it is compliant with all of China’s laws and regulations. The nutritional supplements company said it has a “robust training program” which is designed to ensure that its “sales representatives and service providers comply with all aspects of Chinese consumer protection laws.
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Herbalife partners with Chinese officials
The company states that it has “regularly partnered with local, regional, and national Chinese government officials in seeking out and penalizing those who violate Chinese laws and Herbalife (China)’s rules.” The company also states that it is working with the Ministry of Commerce and the State Administration for Industry and Commerce to “continue to eliminate illegal direct sales activities.”
Herbalife Ltd. (NYSE:HLF) said it has nearly 150,000 Preferred Customers in China who buy its products for self-consumption rather than distribution and 3,000 Nutrition Clubs in the country. It said those clubs each have their own license from the Chinese government.
Ackman continues to fight Herbalife… to no avail
Bill Ackman’s battle to discredit Herbalife Ltd. (NYSE:HLF) as a pyramid scheme has gone on for more than a year now. Unfortunately for him, investors don’t seem too worried about it, as share prices have risen since 2013 when the company continued to post strong results. The stock has fallen off after hitting new record highs, but shares remain fairly close to where they were before Ackman announced his large short position in the stock.