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Summary

  • Carl Icahn apparently doesn't seem to know much about Herbalife.
  • Mr. Icahn has made numerous baffling statements, on the record, about Herbalife.
  • Mr. Ackman's due diligence trumps Mr. Icahn's and I believe the FTC will side with Mr. Ackman.

In honor of the Late Show going off the air, I wanted to pay homage to Mr. Letterman somehow - and the opportunity presented itself to me last night. As I arrived home and checked my Twitter (NYSE:TWTR) feed, I saw that Mr. Icahn had once again subjected himself to an interview on Bloomberg, where he aimlessly mumbled about his feelings on Herbalife (NYSE:HLF), as per his modus operandi, seemingly sans any type of fundamental understanding about Herbalife's business model.

Today, I wanted to take a look at Mr. Icahn's understanding of Herbalife's business in his own words. Surely, a man with hundreds of millions invested absolutely has to have his head wrapped around all of the nuances that make up the fundamentals of the business, right? In this case, maybe not.

And this isn't a goofy exercise for a laugh - there are troves of longs out there that remain invested in Herbalife simply due to the fact that Mr. Icahn has been standing by his investment. His staying in Herbalife remains one of the lone bull arguments that can't be refuted directly. However, if we can show that Mr. Icahn has a fundamental misunderstanding of how Herbalife does business, it can surely dilute his credibility as a long to investors looking from the outside in.

I've been profiling Mr. Icahn every time he does make an appearance on network television with regards to his thoughts on Herbalife - I want to know what makes Carl tick - is there anything bubbling under the surface aside from pure, unadulterated loathing for Bill Ackman?

Surely, one wouldn't put hundreds of millions of dollars of his company's investments towards a company based solely on a personal vendetta - that's the definition of emotional investing.

Having said that and in his own words, here are my Top 5 Absurd Carl Icahn Quotes About Herbalife.

#5 - March 24, 2014

Interview with CNBC - source video here

"That's the marketing of distributors and distributors get paid to bring in other distributors. But I think that all - that has been cleaned up dramatically in the last few years"

-Carl Icahn

Carl does a couple of things here. One, he admits that distributors get paid to bring in other distributors - this is a big deal in and of itself. Secondly, Mr. Icahn states that something has been "cleaned up", which prompts a couple of questions:

  • What has been cleaned up?
  • Why has it needed to be cleaned up?
  • What portion of the "squeaky clean" MLM model is Mr. Icahn admitting needs work?

Mr. Icahn, as you'll continue to see, didn't do himself any favors during this interview and subjected himself to a scathing review of his interview by Herb Greenberg on the same network, later in the day.

#4 - April 10th, 2014

Interview with Bloomberg TV - source video here

"There are things there that [Ackman] says...that are sort of...there are some of these distributors that might be promising stuff...but that's not Herbalife promising..."

-Carl Icahn

Carl's defense today?

Herbalife isn't responsible for the claims made by distributors.

What about the one that sits on your Board of Directors, Carl?

Aside from backhandedly once again admitting that the company does have an issue with what some of its distributors are promising others, Carl seems to have selective memory with regards to what distributors have made these statements in the past.

One of them sits on the Board of Directors - the others are in the circle of individuals that CEO Michael Johnson continually surrounds himself with.

They make these statements at Herbalife sponsored events.

And again, Carl, clearly you haven't done your due diligence. John Tartol, who sits on Herbalife's Board of Directors, was at one point promising $10,000/month in income from being a distributor. For an officer or a director to make such lofty and blatantly false statements is highly questionable.

This is from Tartol's "Success Connection" e-book, which he sold as part of a lead generation site, successconnection.com, which made claims like these:

(click to enlarge)

He's suggesting that by following his plan, you can make $10k a month in just ten months. However, 94.9% of people on Herbalife's own statement of gross compensation fail to even make $10,000 annually.

Carl doesn't get it.

#3 - March 24, 2014

Interview with CNBC - source video here

"Herbalife is not a Ponzi scheme"

-Carl Icahn

Either Mr. Icahn simply misspoke here, which benefit of the doubters will give to him - or he doesn't know the fundamental basis of the claims being lodged against the company that he has hundreds of millions of dollars invested in (my guess).

Either way, the question about Herbalife is whether or not it's a pyramid scheme, not a Ponzi scheme - Mr. Icahn beefed this one during his March 24th interview.

As a reminder for Mr. Icahn, this is the SEC's chart showing the differences between a Ponzi scheme and a pyramid scheme.

(click to enlarge)

#2 - April 10th, 2014

Interview with Bloomberg TV - source video here

"Herbalife gives jobs to a lot of Hispanics."

-Carl Icahn

First off, becoming a distributor isn't a "job" per se. It doesn't offer health benefits, it has no hours, and distributors aren't technically "employees" of Herbalife. So, aside from it not being a job by definition, which in and of itself proves Mr. Icahn wrong - Mr. Icahn also demonstrates that he's not on the same page as Herbalife, who recently admitted on their iamherbalife.com website that only a small portion of people sign up for the business opportunity. Look:

(click to enlarge - source iamherbalife.com)

#1 - January 25, 2013

Interview with CNBC - source video here

"H-A-L-F could be the mother of all short squeezes"

-Carl Icahn

You know what? Carl is right about H-A-L-F. It could be the mother of all short squeezes some day. The only issue is the tiny little detail that Herbalife's ticker symbol is H-L-F, not H-A-L-F.

Oops! Hope the guys in legal didn't hear that one!

This was my Jerry Maguire "you had me at hello" moment.

So, Mr. Icahn either misspoke, yet again, or he didn't know the ticker symbol of the company that he just dumped hundreds of millions of dollars into.

I'll let you be the judge on this one.

Conclusion

From these five examples, the only conclusion that a logical person can draw is that Carl Icahn has very limited knowledge of how Herbalife's business model works, and is only in this trade because he's anti-Ackman. If I were an investor in Icahn Enterprises (NASDAQ:IEP), I wouldn't necessarily be happy. The level of due diligence Mr. Icahn seems to have done does not seem commensurate with a billionaire that's going to be investing hundreds of millions of dollars, by far.

As Matt Stewart would say, it took Ackman a year and a half to present his case as to why Herbalife is a good short, and Icahn just an hour to jump on the other side of the trade. The scales of due diligence lean favorably towards Mr. Ackman, no doubt about it.

For more on the March 24th interview blunders, you can read my Instablog about it here.

Source: Top 5 Absurd Carl Icahn Quotes About Herbalife