Stan Holland

Value, special situations
Stan Holland
Value, special situations
Contributor since: 2012
Thanks Dr. Keep! Pyramid schemes harm people. Please continue to encourage the FTC to aggressively prosecute pyramid schemes.
Reel Ken,
In the Vemma decision Judge John J. Tuchi stated "The evidence before the Court leaves little doubt that the FTC will ultimately succeed on the merits in demonstrating that Vemma is operating a pyramid scheme." The Declaration of Stacie A. Bosley Ph.D. was a key document in the FTC's pyramid scheme allegation against Vemma Nutrition Company.
I have just written my own declaration against Herbalife to mirror the Declaration of Stacie A. Bosley Ph.D. as closely as possible. My declaration is located here:
http://bit.ly/1O3HOMi
The Declaration of Stacie A. Bosley is located here:
http://bit.ly/1O3HMUU
I believe that if compare the two documents side-by-side then you must conclude that Herbalife is a pyramid scheme also.
Stan
PS - 2 & Go analogous to Herbalife's 2-4-1 plan (the Nutrition Club program is arguably even worse with $3000 training and $5000 opening costs); autoship is not much different that inventory loading to maintain supervisor status in that they both force purchases to maintain status
Thanks for the article. Keep up the good work. Pyramid schemes harm people. MLM's without effective safeguards will inevitably harm people.
Hi Reel Ken,
I believe that my argument mirrors the FTC's complaint against Vemma (an argument that did hold up in court) because I see only minor differences between Vemma and HLF. You say that there is a big difference between Vemma and HLF. Please elaborate.
Thanks,
Stan
Reel Ken,
You're welcome. Thank you for taking time to comment.
The FTC did not audit Vemma. They used the same basic framework for their argument that I used in my article (I copied their argument).
Rewards for sales unrelated to ultimate users + incentives to seek those rewards + ineffective safeguards = pyramid scheme if retail sales are insufficient.
I believe that The Declaration of Stacie A. Bosley Ph.D. could easily be rewritten for Herbalife.
In the declaration against Vemma, Ms. Bosley conducted a review of eBay pricing data and concluded that the data demonstrated "the challenge in finding retail customers who will pay above the distributor's cost." Using a similar methodology Pershing Square showed that Herbalife distributors cannot make substantial retail profit because the products are available on eBay and other online marketplaces for prices lower than the even the discounted wholesale prices that Herbalife junior distributors are paying for products.
I believe that the distributors without a downline are primarily buying the product because it is connected to a business opportunity. Take away the business opportunity and Formula 1 no longer outsells Slim-Fast or Ensure, let alone both of them - in my opinion.
Stan
Reel Ken,
I am glad to see that we agree on the definition of ultimate users. Our difference is our opinion whether or not the purchasers of Herbalife products are ultimate users. My argument is that they are buying the products primarily for the business opportunity and not for genuine retail demand. I use the following examples in my article:
1) Genuine retail demand for nutrition, weight management, energy and fitness, and personal care product should not exhibit the "classic pop and drop" when entering new markets. These products fall into the category of defensive consumer staples.
2) A tiny percentage a distributors at the top reap the vast majority of rewards. This is the kind of observation you would expect to see in a pyramid. I should have given credit to Peter van dear Nat for this observation in his Declaration against Fortune High Tech Marketing.
3) Massive churn indicates an inability to obtain a significant retail profit and massive recruiting is required to keep the scheme going.
4) Until a rule change last year, it made no enconomic sense to sign up for 25% discount when independent retailers websites were selling at 40% discount to adjusted SRP. I doubt that the rule change has changed the primary underlining motivation for the majority of members.
5) Even a Chairman's Club member states that "The majority of our people have difficulty in reselling products, in general."
More anecdotal evidence that I didn't mention in the article includes 37,000 nutrition clubs in Mexico and the fact that Formula 1 (~30% of sales) easily outsells Slim-Fast and Ensure combined. This doesn't pass the sniff test for me. I could go on, but if you are not convinced yet, more examples are unlikely to convince.
However, I appreciate your point of view.
Stan
Thanks Robert. Keep up the good work.
Thanks Matt. Keep up the good work.
Thank you for a great article. Keep up the good work!
Reel Ken,
Thank you for taking time to comment on my article. I have read your article "Herbalife: Pyramid or Sphinx?" and found it thought provoking. However, your definition of ultimate user is radically different than the definition I quoted in my above article from the Honorable John J. Tuchi and Stacie A. Bosley.
Stan
Thank you. Can anyone tell me if the same four dots apply to NUS too?
Charlie,
Are any of the current lawsuits arguing that the 10% interest rate is too high? Any chance of the courts retroactively changing the interest rate?
Stan
Christian,
I would love to see your calculation in a spreadsheet. I believe Bill Ackman performed this calculation on page 98 of his May 5, 2014 presentation and came up with $75B for FNMA and $49B for FMCC.
Stan
The precedent set by AIG makes it hard for me to fathom the government exiting Fannie & Freddie with hundreds of billions of dollars in profits. If the government exits Fannie & Freddie I could imagine the warrants being cancelled and Fannie and Freddie being recapitalized in the private markets (perhaps through a rights offering backstopped by Fairholme, Pershing Square, and/or others?).
Matt,
You should write an article where RC Cola adopts the MLM model, charges 3x the price, and ends up outselling coke and pepsi combined.
Write your congressman to support H.R. 1036. I did.
http://bit.ly/1Ctd5b0
Interesting. Any comments on management and their large insider ownership?
While I like to think that oil and gas in well within my circle of competence, I know that coal is outside my circle of competence. Coal as a commodity has been crushed in the last few years, but I can't help from being intrigued by a Linc Energy press release from 5-Sep-2008 (a dramatic period of time in the financial markets) where Linc Energy agreed to sell its Teresa coal exploration permits for AU$ 1.5 billion. The sale subsequently fell through and another buyer has not appeared, but this is an interesting data point that suggests that the coal assets may be worth at least its current enterprise value (if coal prices were ever to rebound) and that all the other assets are free.
Does anyone have an estimation of what the conventional coal assets are currently worth?
http://bit.ly/1qTms8N

Leo,
I also own a few shares in Linc Energy and after reading the annual report, I made the following notes/conclusions while ignoring the current drop in oil prices (temporary in my opinion):
1.Proved PV10 for Gulf Coast = $417MM
2.The Umiat field in Alaska has a 2P PV10 value of $2.465 billion, but page 12 of the 2013 annual report states that “Wood Mackenzie has estimated the sale value of Umiat as between $100 and $200 million in its current undeveloped state.” Page 13 of the 2014 annual report states that “the initial development of Umiat could include the drilling of up to 70 wells.” I believe that the one well drilled last winter did not significantly alter the $100 - $200 million estimated value of Umiat.
3.The value of the Wyoming oil and gas assets in their current undeveloped state is de minimus.
4.NEC conventional coal assets are difficult for me to value in today’s environment, but probably worth substantially less than the $400 million value advertised last year.
5.UCG - I will not hazard a guess as the value of UCG, but it is worth noting that the company invested over $200 million over the last ten years.
6.Face value of debts is $620 million
7.$145 million USD for sale of Carmichael/Adani royalty
8.591 million shares outstanding (divide by 10 to arrive at equivalent number of LNCGY shares)
9.Enterprise value ~$850 million
While I do not think that the underlying assets make Linc Energy a ‘Sure Thing’, I do believe that the current exploration program in the Arckaringa Basin make for an asymmetric high risk/high reward speculation. Linc Energy has three conventional leads that each might contain 18 to 22 billion barrels of oil (Gustavson best estimate - unrisked). Additionally, Linc Energy has three more conventional leads that each might contain 1.4 to 7.6 billion barrels of oil (Gustavson best estimate - unrisked) plus a bunch of smaller leads. At least one conventional target will be intersected with open hole testing if moveable hydrocarbons are detected. I wonder which conventional target they plan to intersect.
Stan
Clayton,
Listen to the June 10, 2014 Enercom presentation at the 20:00 mark.
CEO states that EXXI's strength was more of an engineering shop and EPL was more of a GeoScience oriented company. EXXI got everybody they wanted on the professional staff except maybe three people and when you look at EPL's top ten management EXXI took five.
Stan
The idea of extending the underutilized Urucu-Manaus pipeline to Petrobras' Jurua field and Rosneft's/HRT's fields has been revived.
http://bit.ly/1rrjb5m
Leo,
The net present value HAS been estimated for the Gulf Coast and Wyoming oil fields.
As of Sep-2013 the proven PV-10 for the Gulf Coast = $601MM
The 3P PV10 for Wyoming = $1.1 billion. Virtually all of the Wyoming reserves are in the possible category. Oil volumes have been classified as "possible" under SPE-PRMS guidelines because of several factors including the fact that there is no current productions in the fields under the planned CO2 recovery and no pilots have been implemented to prove the process. However, the historical waterflood performance is a predictor of sweep efficiency and subsequent CO2 flooding is low risk.
Stan
Edward,
Thank you for the interesting idea. The concern that I have is timing. My understanding is that the next step for Stans Energy is to obtain an Ontario court order. It seems to me that Stans Energy would follow a similar timeline as the Turkish company, Sistem, you reference in your article. Timeline for Sistem is as follows:
9-Sep-2009 - final binding ruling by Arbitration Court
5-Jan-2011 - The Ontario courts granted an Order recognizing and enforcing the award in Ontario and ordering the Kyrgyz Republic to pay Sistem in accordance with the arbitration award.
After numerous motions based on jurisdictional issues and substantive issues...
15-Apr-2014 - Ontario courts ruled that the Kyrgyz Republic had an "equitable or other interest" in shares of Centerra Gold held by Kyrgysaltyn and that such shares could be seized in Ontario to satisfy an international arbitration award made against the Kyrgyz Republic.
The timeline was extracted from the following press release:
http://bit.ly/1zsGJcf
Do you have any reason to believe that the process would go faster this time?
Stan Holland
Thank you for writing this excellent article FT!
No doubt that the Dussafu block is on Vaalco's radar. All of the partners on both blocks joined forces to shoot the overlapping Central Dussafu 3D that is shown in your first image. I would be shocked if Vaalco has not visited the data room. I judge Vaalco's stock to be somewhat overvalued and an overvalued stock is excellent currency to use in an acquisition. Perhaps Vaalco could make a joint bid with one of their current partners too. Seems like there could be some synergies with sizing FPSO's between the two blocks. The most important thing is what is in the data room and unfortunately outside passive minority investors like ourselves can never really know that.
Thank you for writing your articles. Welcome to Seeking Alpha as a contributor! I look forward to reading future articles from you.
Thank you for writing this article. If you count the money owed by the Alberta government, then this stock is a Benjamin Graham net-net trading at less than 2/3rds of NCAV. I am long.
Yes, you are correct. Linc Energy retains a significant royalty ($2 per tonne (indexed to CPI) over the first 20 years of production) for the Carmichael Coal tenement sold to Adani Mining.
"The Adani Group remains on target to start overburden removal operations at the Carmichael coal project in third Quarter of 2014 with exports to occur in first Quarter 2017. The ramp up to full production (60 Mtpa) is expected by 2023."
I am not the best person to ask about ASX listing verses SGX listing, but here is a 4-Oct-2013 video of CEO Peter Bond claiming the benefits.
http://bit.ly/1cDr678
It seems to me that the ~$50 million capital raise was accomplished because of the switch.
The following linked article is a bit dated, but I believe the underlining argument is still valid:
http://bloom.bg/18oFEDi
Southeastern Asset Management has sold all of their shares, and I have sold the majority of my shares, but I still hold a few for the reasons stated in the linked article and for lack of opportunities.
I seem to be genetically attracted to homerun stocks so if anyone has any suggestions, please let me know.
The November 26th, 2013 presentation gives more color on the "humongous" Ombundi Lead in the Kwanza Basin. Potential = 100-400-760 MMbls. This potential is depicted in the cartoon as being spread across three horizons. This makes the high 760 MMbls scenario very unlikely as all three horizons would have to be successful AND all three would have to be at the high end of their possible outcomes. Still very high impact potential for the company, but the risked high case is probably less than one half of the one billion barrels that I dreamed about in my article. The potential will most likely be revised after the 3D seismic is processed.
Treehill,
In order to buy the entire company, a buyer would have to offer a premium to the $3.3 billon enterprise value ($1.1 billion market cap plus the $2.2 billion in net debt).
Thanks for the article MLP. I am having trouble with your calculation of enterprise value. By my calculation there is $2.2B in net debt and over $1B in market cap, even at yesterday's 52 week low.