Pershing's Bill Ackman: 'Herbalife's Business Will Ultimately Fail'

Bill Ackman is done talking about Herbalife Ltd. HLF.

After restructuring his high-profile short position, which is now represented entirely by put options, the Pershing Square Capital manager said he's finished commenting on the stock. 

“Going forward we intend to substantially limit our comments on Herbalife in light of the reduced capital in the investment and because we believe that further comments may distract investors from Herbalife’s deteriorating fundamentals, “ Ackman said in a Nov. 15 letter to shareholders.

Herbalife's weakening finances, adverse publiclity and negative regulatory and legal developments mean that Herbalife stock remains at levels “that we believe do not make sense from a fundamental investment point of view," Ackman said. 

'Herbalife's Business Will Ultimately Fail'

Despite the decision to go silent on a company he has publicly blasted for years, Ackman’ letter to shareholder’s reiterated his stance on why he  maintains a $1 billion short position in the multilevel marketing company, outlining six key factors that Ackman said would make any short seller optimistic:

1. Herbalife's financial performance has deteriorated significantly.
2. Despite the company having repurchased 33 percent of outstanding shares since Pershing shorted the stock, GAAP and adjusted EPS are down 19 percent and 16 percent, respectively. 
3. The FTC settlement appears to be severely impacting the company’s business. U.S. sales for the second and third quarters were down 18 percent year-over-year and third quarter sales were down 9 percent sequentially.
4. The Chinese government recently launched an investigation of multilevel marketing firms operating in China — a market that represents about 20 percent of Herbalife’s revenues.
5. The company has been subject to a tremendous amount of criticism and negative publicity, including from John Oliver and in the documentary film "Betting on Zero."
6. On Sept. 20,2017, the company and its top distributors were sued in a class action complaint over alleged civil racketeering violations.

“We continue to believe that Herbalife’s business will ultimately fail as increased regulation and saturated markets coupled with substantial leverage further impair business fundamentals. Furthermore, we believe our recent restructuring of the position may be a catalyst to counteract technically driven interest in the shares,” said Ackman.

Shares of Herbalife are up 1 percent on Monday, trading at $66.43 at last check. 

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Photo courtesy of Herbalife.