Seeking Alpha

Ackman sends 52-pager to Herbalife auditor, Ramey says nothing material

  • "There are audit-type questions, something that two accountants might have a spirited discussion about at a cocktail party, but nothing that seems material," DA Davidson's Tim Ramey says, regarding a letter Bill Ackman's Pershing Square sent to Herbalife's (HLF -1.8%) auditor PwC.
  • "If we are correct that HLF is a pyramid scheme and PwC fails to accurately inform investors of this risk, PwC may incur substantial liabilities in the event of the Company's failure," Ackman says In the letter (dated August 29).
  • Pershing Square raises a whole host of questions over 52 pages including: Whether HLF accounts for wholesale commissions as an offset to revenue, whether the company improperly classifies unremmitted earnings as "permanently reinvested," and whether the company's Venezuelan assets are overstated. (full letter)
  • Here's HLF commenting: "As Mr. Ackman continues to lose his investors' money on a reckless $1B bet, he has become increasingly desperate."
Comments (27)
  • NYPaperman
    , contributor
    Comments (35) | Send Message
     
    Sounds like Ackman is close to blackmail. Taking the first sentence from Wikipedia: "Blackmail is an act, often a crime, involving unjustified threats to make a gain or cause loss to another unless a demand is met." Ackman is now acting like a desperate spoiled child and I assume that he is in the office corner holding his breath with an occasional rant and stomping of feet. The guy and his associates at Pershing have gone nuts. I wonder if the fellow who thought this whole short on Herbalife has been fired yet. If not - then it was Ackman's idea. Bottom line: Does Ackman really believe that Price Waterhouse does not know the law!
    11 Sep 2013, 03:03 PM Reply Like
  • zorro2828
    , contributor
    Comments (537) | Send Message
     
    sour grapes
    11 Sep 2013, 03:06 PM Reply Like
  • jmj858
    , contributor
    Comments (89) | Send Message
     
    "...we are writing to bring to your attention concerns that we and our accounting advisors have identified..." --WAA

     

    However, should disagree with our 'advisors':

     

    "...we would also like you to explain how PwC intends to overcome and resolve the appearance of impaired independence..." --WAA

     

    You must be on the take.
    11 Sep 2013, 03:24 PM Reply Like
  • herbs4mike
    , contributor
    Comments (2066) | Send Message
     
    Ackman is screaming cause he knows once the audit is finished so is he..... The offer will finish him.
    11 Sep 2013, 03:29 PM Reply Like
  • Michael Riley
    , contributor
    Comments (47) | Send Message
     
    Mr Ackman has been very successful in putting people at Herbalife on the record and establishing a case for future criminal charges. I expect to see all kinds of shuffling among managers and insiders and a record outflow of executives over the next 18 months.
    11 Sep 2013, 03:30 PM Reply Like
  • herbs4mike
    , contributor
    Comments (2066) | Send Message
     
    @mike.....totally wrong... You know none of them. I know some.... They`re good people
    12 Sep 2013, 09:06 AM Reply Like
  • Distributor Dan
    , contributor
    Comments (319) | Send Message
     
    Yep, me too - they have really great people.

     

    MOJ has had his shake down and has built a top management team over the past 10 years from people with solid long term business backgrounds. The one correct thing that Ackman has said about Herbalife is that it is "well run".

     

    There's not going to be any shuffling, outflows and certainly not any criminal charges within this great company. If you are sill short based on this expectation, I truly feel sorry for you.
    13 Sep 2013, 08:37 AM Reply Like
  • toddyogi
    , contributor
    Comments (105) | Send Message
     
    Point I is a recitation of the idea that ‘wholesale commissions” should be a P&L cost rather than a contra-revenue account. Frankly we are indifferent as to which accounting treatment Herbalife uses, but the treatment it uses seems more conservative than what Pershing Square proposes.

     

    Point II – Ackman seems to assume that the borrowings and repayments are linear rather than random. The company uses it’s LOC as a checking account so it may be a borrower on day one, repay on day two, and a borrower again on day three. There is not a quarterly build of borrowings followed by a quarterly squeeze.

     

    Point III – Pershing Square questions the tax treatment for unremitted earnings. We suggest that this is a question for U.S. tax policy more broadly. Virtually all multi- national companies do this.

     

    Point IV – Every company has some small non-controlling interests – Herbalife operates in 88 countries, and some require that there be a local partner. From an economic perspective, these interests are not material and thus are not disclosed.

     

    Point V – Herbalife would love to write down its Venezuelan assets and the Street would embrace it; doing so would be positive to future GAAP EPS. It can’t do this, however, until its accountants tell it to.

     

    Point VI – Herbalife follows the law in every jurisdiction it operates in regarding unclaimed foreign royalties. Point VII – This one gave us a chuckle. We see some pretty outlandish items classified as “non-recurring for non-GAAP EPS” in many companies’ 10Ks. Herbalife uses this very sparingly. And GAAP is GAAP; investors can choose what they wish to adjust for.
    11 Sep 2013, 03:45 PM Reply Like
  • toddyogi
    , contributor
    Comments (105) | Send Message
     
    .

     

    Point VIII – Pershing Square misses the fact that Herbalife has a global organization and pays globally, so a U.S. Sales Leader may well have downline members in another country. The $369.8 million figure for gross payments then reflects both U.S. and non-U.S. sales.

     

    Points IX through XI are truly minutia. We didn’t see anything that should move the needle.

     

    From "Nothing Material in Ackman's letter," by Tim Ramey, DA Davidson
    11 Sep 2013, 03:48 PM Reply Like
  • poortorich
    , contributor
    Comments (2253) | Send Message
     
    Isn't Price Waterhouse an accounting firm?
    Its odd that someone would tell an accounting firm how to do accounting.
    11 Sep 2013, 03:56 PM Reply Like
  • MICHAELCRAIG18
    , contributor
    Comments (98) | Send Message
     
    This is such a strange situation. I bet there is a movie out soon about it.
    11 Sep 2013, 04:18 PM Reply Like
  • barmen
    , contributor
    Comments (128) | Send Message
     
    and book :)
    11 Sep 2013, 04:37 PM Reply Like
  • Joseph Poma
    , contributor
    Comments (437) | Send Message
     
    Nothing reeks of desperation as badly as blackmail does.

     

    Ackman is essentially saying to the auditor:

     

    "If I'm right, you will lose, and if I'm wrong I will do what it takes so that you lose."
    11 Sep 2013, 04:19 PM Reply Like
  • Joseph Poma
    , contributor
    Comments (437) | Send Message
     
    "In light of the materiality of this audit to Herbalife, it is crucial that investors can be confident of the independence and objectivity..."

     

    Is he serious? If you were so worried about independence and objectivity, you would have shut your mouth and let the auditing company, whose specialization is in accounting and auditing, do their job unimpeded and without outside commotion!
    11 Sep 2013, 04:32 PM Reply Like
  • Distributor Dan
    , contributor
    Comments (319) | Send Message
     
    Must be trying to buy time before announcing that he is bailing out.

     

    He's extremely lucky that Scott London from KPMG was a crook, otherwise this would be all done by now.
    11 Sep 2013, 04:34 PM Reply Like
  • Yteeld
    , contributor
    Comments (1031) | Send Message
     
    His arrogance has him believing that he can accomplish anything. He has now told the SEC, FTC and PWC how to perform their respective professions. How did the financial world ever survive before Bill Ackman arrived? He is well aware that the dance is getting old and the music is fading so he is pulling out all the stops now. I am quite sure PWC is well aware that all eyes are on their audit results and will dot the I's and cross the T's. His thesis never factored in the dislike for his perceived arrogance by other hedge fund managers and how they would pile on.
    11 Sep 2013, 06:19 PM Reply Like
  • Lone Star
    , contributor
    Comments (73) | Send Message
     
    George Clooney couldn't have said it better in his description of these hedge fund crooks who think they own the world and want to tell everyone how do their jobs. It's time he takes a page from his own book
    11 Sep 2013, 10:53 PM Reply Like
  • Garnaut
    , contributor
    Comments (86) | Send Message
     
    Bye Bye Bill! Its just a matter of time. Get on the products Bill. They will help you handle all the stress, give you more energy, focus and concentration because you are certainly in need of that at the moment. They will also help people like you be more rational! You need that at the moment big time!
    11 Sep 2013, 09:44 PM Reply Like
  • Lone Star
    , contributor
    Comments (73) | Send Message
     
    I agree, his experience would totally change his life.
    11 Sep 2013, 10:54 PM Reply Like
  • Lone Star
    , contributor
    Comments (73) | Send Message
     
    Would love to have him in my nutrition club to teach him what Herbalife is about. We are not haters, just in the business to get great results on the best products and to help others do the same
    11 Sep 2013, 10:57 PM Reply Like
  • Andrew Williams
    , contributor
    Comments (235) | Send Message
     
    Most of the questions have nothing to do with Ackman's original thesis and don't raise significant issues.

     

    Attempting to interfere with PWC's efforts strikes me as unprofessional (is intimidation unethical?) and maybe even a bit immature.
    12 Sep 2013, 08:39 AM Reply Like
  • Yteeld
    , contributor
    Comments (1031) | Send Message
     
    Should we also assume that Moelis & Company are next on Ackman's to do list? One would think that the investment company advising HLF on financial strategic alternatives would also have some legal liability exposure. If he really feels that working with a pyramid scheme company exposes one to liability, should he not send his warning letter to Moelis & Company? Time will tell........
    12 Sep 2013, 09:43 AM Reply Like
  • Yteeld
    , contributor
    Comments (1031) | Send Message
     
    Where was Ackman's concern for society when he was touting Prepaid Legal years ago?
    12 Sep 2013, 09:45 AM Reply Like
  • Akmanscam
    , contributor
    Comments (2096) | Send Message
     
    Just another futile and impotent attempt by Ackman to try to save his butt with this reckless short position. I think it is very obvious by now that no one is taking Ackman seriously. He acts like a child throwing a tantrum when he doesn't get his way. Some of us posted here last December that Ackman was way over his head and out of line with his theory.

     

    This wasn't just David vs Goliath. In this case, this David came totally unprepared to do battle and in this case, this David was/is the evil one.

     

    Hopefully Ackman's buttkicking will serve as a warning to other hedge fund short sellers and perhaps they will think twice before attacking good companies for no reason other than to make a profit.
    12 Sep 2013, 10:24 PM Reply Like
  • lindsaygdurham
    , contributor
    Comments (368) | Send Message
     
    What happened about the audit of HLF by P.W.C.?
    26 Jan, 08:31 AM Reply Like
  • just2look
    , contributor
    Comments (1358) | Send Message
     
    lindsaygdurham: "What happened about the audit of HLF by P.W.C.?"

     

    Ackman's 52 page letter to PwC and the SEC last August, successfully caused a dip in HLF's stock price and a delay in PwC's audit reports, which Ackman used to "restructure" a purported 40% of his infamous short position. Last month Herbalife filed the reaudited results with no material changes.

     

    So, what happened is Ackman appears to have successfully manipulated the market long enough to save his investors a few hundred million in additional losses. I, for one, suspect this process is repeating this month with the Chinese reporting and the letters that Ackman had Senator Markey send to the SEC and FTC, and Ackman is either restructuring or making a quick hit to recoup some losses in HLF.
    26 Jan, 08:45 AM Reply Like
  • Akmanscam
    , contributor
    Comments (2096) | Send Message
     
    Ackman had some good moves, but he has run out of clever moves and is running out of time.
    2 Jul, 07:28 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|