Herbalife shares declined for the sixth straight day, increasing the chances that activist investor Bill Ackman is making a profit on his bet against the maker of shakes and supplements.
The stock fell 6.7 per cent to $28.37 at 10:17 a.m. in New York, and earlier dropped as much as 9.3 per cent, approaching the lowest price since Ackman first wagered against the nutrition company that he calls an illegal pyramid scheme. The stock already has tumbled 25 per cent this year, following a 52 per cent decrease in 2014.
After taking his short position in 2012 when the shares were trading at about $49, Ackman has weathered a run-up and decline in the stock. The Herbalife position held by Ackman’s hedge fund, Pershing Square Capital Management LP, gained $800 million during 2014 after being down as much as $760 million at one point, he said in December. The stock’s slide this year suggests that Ackman is above the break-even point.
The hedge fund manager has said he began building what would become a $1 billion bet against the stock in May 2012 before disclosing it on 19 December of that year. During that period, the stock was trading at an average price of $48.58. Ackman has since restructured his Herbalife wager using long-term put options, making an exact determination of his break-even point difficult.
Ackman has led a two-year campaign against Herbalife, calling it a “criminal enterprise” that uses overpriced products as a front for a recruiting scam. The company, based in Los Angeles, has repeatedly denied being a pyramid scheme.
Seller Speculation
During an interview with CNBC today, Ackman speculated that there is a massive seller of Herbalife stock in the market based on recent options activity.
“When you shine sunlight on Madoff, it makes it difficult for Madoff to find new victims,” Ackman said, referring to the convicted Ponzi schemer. “The same thing is happening at Herbalife. The recruitment is dropping.”
Herbalife’s business practices are being reviewed by the Federal Trade Commission, an investigation that followed Ackman’s initial attacks. While Herbalife has said that it expects to be vindicated, the probe has weighed on the stock. Herbalife also has imposed stricter selling rules on itself, aiming to blunt criticism from Ackman. That has contributed to slowing growth.
Bloomberg News, edited by ESM
