Herbalife Ltd. (NYSE:HLF) has fallen close to 10% in value since December 19th, when reports first surfaced that Bill Ackman, manager of Pershing Square Capital, was shorting the stock, believing its business to be a pyramid scheme. On the accusations, Herbalife’s CEO Michael Johnson had called it “blatant market manipulation” (see Herbalife CEO Wants SEC to Take Action Against Ackman).
Since Christmas Eve, shares of Herbalife have gained over 40%, and now rest above the $38-mark for the first time since Ackman’s initial claims surfaced. It’s worth noting that the stock is still roughly nine-tenths of its original value, but the recent recovery has been a welcoming sign for investors who were initially floored by news of the hedge fund manager’s short position.
Over the past few weeks, Herbalife has taken several steps to strengthen its position against Bill Ackman and Pershing Square, who have interestingly said that “[w]e welcome the SEC looking at our books.” In Ackman’s original presentation last month, which detailed his allegations against Herbalife, he mentioned four distinct pillars of a pyramid scheme. In our original recap, we found that they include: “(1) questionable R&D practices, (2) mentions that Herbalife buys their credibility, (3) the assertion that around 90% of payments are incentive-based, and (4) evidence of bubble-like trends in multiple countries.” (See the full details of the presentation here).
So what is Herbalife Ltd. (NYSE:HLF) doing in defense?
Among the steps that Herbalife has taken to combat these claims, the most notable are the hiring of investment bank Moelis & Co. to serve in an advisory role in the last full week of December, and the hiring of Boies, Schiller & Flexner, the prominent law firm. Originally reported by FOX Business Network earlier today, the firm’s chairman David Boies, will be in attendance at Herbalife’s investor conference this Thursday.
On the air Tuesday, Charlie Gasparino says that his presence indicates “an interesting dynamic here, where the company is putting a stake in the ground saying: if you mess with us, we are going to come after you.”
Additionally, Gasparino had this to say: “We should point out the the SEC investigated Herbalife […] they apparently dropped the investigation […] it looks like Ackman wants them to reopen the investigation.”
Interestingly, Robert Chapman, the manager of Chapman Capital, released a bullish note to investors late last week. The purpose of the letter can essentially be summed up in its title (via CNBC): “Herbalife: Why I Made It a 35% Position after the Bill Ackman Bear Raid.“
Additionally, Gasparino reported via Twitter that Chapman had “big news” with regard to Ackman and Herbalife. We can only speculate what this news may be, but here’s the tweet below:
Obviously, this saga is far from over, but it’s clear that the markets are responding positively to Herbalife’s defensive tactics against Bill Ackman.
Let us know your thoughts in the comments section below, and for more related coverage, continue reading here:
Ackman’s Four Pillars of a ‘Pyramid Scheme’
Herbalife Isn’t the Only Stock With an Ackman-Tilson Connection
Bill Ackman Will Give Personal Profits to Charity From Herbalife Short
Disclosure: I have no positions in any of the stocks mentioned above
