Herbalife surges as Ackman alleges nutrition clubs lose $12,000/year

Herbalife Ltd. (NYSE:HLF), the seller of supplements and weight-loss shakes, surged in midday trade today even as hedge-fund manager Bill Ackman alleged that the company’s nutrition clubs lose $12,000 per year, on average.

Shares were up 16 percent at $62.61 at 1:20 p.m. in New York.

Speaking during what he’s billed as the most important presentation of his career, Ackman said the loss is an estimate without specifying how he came to that conclusion. 

The event, in New York, is the latest salvo in a nearly two-year, $50 million, campaign to shut down the George Town, Cayman Islands-based firm.

Ackman, who is positioned to profit from Herbalife’s falling share price, said his Pershing Square Capital Management LP investigated 240 of the company’s clubs in several countries.

“They are not selling weight loss in these clubs, they are selling business opportunities,” Ackman said at the presentation to investors in New York, adding the clubs provided free babysitting and had people working making nutrition drinks without pay.

“This is all free labor, totally illegal,” he said.

He also said Herbalife targeted minorities.

Herbalife CEO “Michael Johnson is a predator,” Ackman said fighting back tears as he wrapped up the second hour of the presentation while referring to his family’s American story, which started when his great grandfather immigrated to the U.S. from Russia. “This is a criminal enterprise.” Ackman called Herbalife a $24 billion “scam.”

Herbalife‘s gains also followed the release of an economic analysis by the company showing that it’s not a pyramid scheme as Ackman asserts. According to the research by Walter H. A. Vandaele, an economist at Navigant Economics LLC, 97 percent of Herbalife’s products are purchased for end-use consumption, Herbalife said.

After Ackman made television appearances yesterday, during which he drew comparisons between Herbalife and Enron Corp., the shares had dropped 11 percent.

Ackman has spent about $50 million to investigate the company, lobby regulators to close it and host public presentations to level their allegations. He initially sold short $1 billion of Herbalife’s shares before restructuring his investment with options, details of which he has declined to disclose.

Pershing accuses the company of misleading distributors, misrepresenting sales figures and selling a commodity product at inflated prices. Regulators including the U.S. Federal Trade Commission and law enforcement are investigating the allegations.

Herbalife, which has vigorously denied Ackman’s accusations, said today that Ackman was trying to drive down Herbalife’s shares over a relatively short period because a “substantial portion of the bet expires on January 17, 2015,” referring to put options Ackman purchased last year when he restructured his short position in the company’s shares. Circumstantial evidence suggests Ackman’s put options are currently not in the money.

Last week, Herbalife issued a press release saying Pershing Square’s thesis “is simply false” and that its “information, presentations and representations cannot be trusted.”

Source: http://www.proactiveinvestors.com/companies/news/55609/herbalife-surges-as-ackman-alleges-nutrition-clubs-lose-12000year-55609.html