I'm an Herbalife (HLF) bear and a subscriber to Bill Ackman's thesis that the company is fundamentally flawed at the business model level. As every day passes, the war over the company gets more and more dramatic - longs dig in even harder, shorts continue to fight against the company.
Admittedly, Herbalife has had a stellar year in terms of stock performance, up 124% since the beginning of 2013; even in the face of its auditor resigning and Ackman's short thesis hitting the public eye. So far, the longs and bulls have had their boots on the necks of Herbalife shorts and bears - but, it ain't over until it's over - and time continues to march on.
It was reported this morning that Herbalife is trying to "turn the tables" on Bill Ackman, meeting with Pershing Square's investors, trying to convince them that their money is in the wrong place:
Moelis & Co., an investment bank working for Herbalife, arranged a meeting with Cliffwater LLC, which advises clients on hedge-fund investments, and Herbalife executives, according to two people with knowledge of the gathering. Moelis also reached out to New Jersey's $76.7 billion pension fund, which has $207 million invested with Ackman, said the people. Executives of the New Jersey fund haven't met with the Herbalife camp.
"Herbalife and Ackman have been fighting in one theater, and now the warfare has moved into an additional theater," said John Coffee, professor of securities law at Columbia University in New York. "All's fair in love and activism," he said, adding that the tactic of putting pressure on activist investors through their clients is a new one.
Certainly an interesting move, this is. However, it's not new territory for Bill Ackman who, when he was shorting MBIA was public enemy number one, and had to endure skeptics, lawyers, regulatory agency depositions, and all other types of pushback. With MBIA, it even got to the point where Ackman had to hire personal security.
In the spirit of being contrarian, this move from Herbalife seems like they may actually be tipping their hand a bit and acknowledging that things may not be going well under the surface.
Rather than waste time, money and resources "going on the offensive", why would they not implement the same type of aggression in:
- finalizing audited financial statements?
- implementing a retail sales tracking program?
- working on consistent IR/disclosures with regards to how they answer questions about retail sales?
- addressing the concerns of an open SEC Enforcement Division case?
The question remains: if Ackman isn't a threat to the company, is producing misleading information and Herbalife has nothing to worry about - why go after him? Why not simply conduct business as usual and let the cards fall as they may?
One theory that has yielded me huge gains, not only in the market, but personally, is the theory of resistance indicating progress. Often I've seen extraordinary resistance line up in the face of extraordinary progress . From the short camp, I see this as a nod that Ackman and the bears could potentially be making some headway with their argument if Herbalife feels it has to fight back after the stock is already up double. It seems like it's getting personal with Herbalife, and by going on the offensive, I'd suggest Herbalife may be tipping its hand that the shorts could potentially have a point.
Regardless, it's fun to watch this drama unfold, and I wish investors the best of luck.