Photo: Screenshot from CNBC
Ever since Bill Ackman announced that he was shorting multi-level marketing nutrition company Herbalife, the Street has wondered if his fellow activist investor, David Einhorn had taken a position as well.Now, according to the WSJ, the word is out that he did have one in 2012, but closed out before the end of the year. He disclosed this information at an investor meeting at the Museum of Natural History yesterday.
Speculation that Einhorn had built a position in the stock didn’t come from thin air. Back in May the activist investor jumped on an Herbalife conference call and asked three questions about the company’s business model that sent the stock plummeting.
Here are the questions Einhorn asked:
- “First is, how much of the sales that you’d make in terms of final sales are sold outside the network and how much are consumed within the distributor base?”
- “What is the incentive for supervisor to sign somebody up to become a distributor as opposed to – if they’re just going to consume for themselves as opposed to just selling them the product for the markup. How does the distributor – how does the supervisor come out better?”
- “When you had your previous 10-K, you disclosed three groups of distributors at the low-end. You called 29% self consumers, 57% small retailers, and 14% potential sales leaders and then that disclosure did not repeat in the subsequent 10-K. So, I got two questions, first of all how do you track that and how do you characterise and know which ones are which? And second, why did you stop disclosing that in the last 10-K? Is that something that you stopped tracking or just stopped disclosing?”
His questions amount to one simple point — whether or not Herbalife actually makes enough revenue outside its network of sellers to sustain the company. Bill Ackman asserts that it does not, and that the company is a pyramid scheme.
The WSJ says that Einhorn didn’t get into much detail about his Herbalife short at his investor meeting (which was held at the Museum of Natural History). He said that he didn’t want to “butt heads” with Ackman and hedge fund manager Dan Loeb, who has a long position in the stock.
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