Explaining Southern California's economy

Will Bill Ackman face a 'short squeeze' on his Herbalife bet?

SUSAN GOLDMAN

A worker cleans the logo on the Herbalife sign as finishing touches are put on the company's building in Torrance, Calif. The company has defended itself against charges that it's a pyramid scheme.

Hedge fund manager Bill Ackman, who runs Pershing Square Capital Management, has taken a $1-billion-plus short position against L.A.-headquartered Herbalife, the diet and nutritional supplements company.

Ackman says Herbalife is operating a pyramid scheme: its business depends on signing up new suckers, not on actually selling products. He's pledged to drive the company, in the language of finance, "to zero."

Ackman's fellow hedge fund manager Dan Loeb is taking the other side of that bet. He's buying up Herbalife shares, whose value was depressed last year following a three-hour presentation (complete with 343 PowerPoint slides) by Ackman. 

Ackman is short. Loeb is long. And Herbalife is stuck in the middle.

But the situation is improving for the company. Last week it made its case, which included the fact that Herbalife has nearly $1 billion in cash on hand to execute buybacks of its shares. 

Read More...

Why are Dan Loeb and Bill Ackman fighting over the future of Herbalife?

Hedge fund manager Bill Ackerman says Herbalife is a pyramid scheme and has bet $1 billion on its fall. Hedge fund manager Dan Loeb begs to differ and has bet $350 million that the stock will rise in value.

Herbalife has a headquarters in downtown Los Angeles, is incorporated in the Cayman Islands, is run by CEO Michel Johnson, a former Disney executive, and has been in business for more than 30 years. It did $3.5 billion — yes, that's billion — in net sales in 2011, has 6,000 staff employees and three million — that's million — independent distributors worldwide.

And since late last year, it's been under assault by Bill Ackman, who runs Pershing Square Capital Management, a New York hedge fund. Just before Christmas 2012, Ackman conducted a three-hour presentation is which he worked through 343 PowerPoint slides (see it here and add to Business Insider's over three million page views for the post) and laid out the case that Herbalife is a pyramid scheme. Ackman has set a target price for the company's price of zero. 

Read More...