The New York Times’ Michael Schmidt, Eric Lipton and Alexandra Stevenson have a big front page story on Bill Ackman and his $US1 billion bet against Herbalife.
In late 2012, Ackman publicly revealed that Pershing Square had put on a $US1 billion short position on Herbalife, a multi-level marketing company that sells nutritional supplements and weight loss products.
Since then, he’s been leveraging his political connections to help bring down Herbalife.
The New York Times reports that Ackman’s team has “helped organise protests, news conferences and letter-writing campaigns in California, Nevada, Connecticut, New York and Illinois, although several of the people who signed the letters to state and federal officials say they do not remember sending them.”
A wave of additional letters started to be sent to federal regulators by groups like the Hispanic Federation and the Consumer Federation. Each person contacted by The Times acknowledged in interviews that they wrote the letters after being lobbied by representatives from Pershing Square, or said they did not remember writing the letters at all. Mr. Ackman’s team also then started to make payments totaling about $US130,000 to some of these groups, including the Hispanic Federation — money he said was being used to help find victims of Herbalife. The pitch by Mr. Ackman peaked in early February, when nearly 30 people affiliated with Latino advocacy and church groups, several of whom had joined the cause after being briefed by consultants hired by Mr. Ackman, flew to Washington to meet with members of Congress and the head of the F.T.C., again pressing for investigators to take action against the company.
Ackman believes that Herbalife operates as a “pyramid scheme” that preys upon lower income individuals, particularly from his Hispanic population. Ackman is betting that the company’s share price will plummet to $US0. In other words, he believes regulators, specifically the FTC, will be persuaded to shut down the company.
He has also said that any personal profits he makes from the short will go to charity.
So far, the short hasn’t played out in Ackman’s favour. Since revealing his short position, shares of the stock have skyrocketed and his fund has suffered about $US500 million in mark-to-market losses. What’s more is other fund managers, most notably Ackman’s long-time rival Carl Icahn, have amassed significant long positions in the stock.
Still, Ackman has said that he will take his Herbalife short “to the end of the earth.”
One way to do that is to lobby.
Since Ackman’s short position became public, a slew of letters calling for an investigation of Herbalife have been sent to the FTC by various consumer and Hispanic groups. Some of the letters have come from a couple members of Congress.
Both sides have the right to lobby. What’s more is Herbalife’s lobbying has dwarfed Pershing Square’s contributions. According to Reuters’ Svea Herbst-Bayliss, Herbalife spent $US2 million on federal lobbying in 2013.
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