If you follow the Herbalife (NYSE:HLF) story, one of the things that is most amusing is just how closely the behavior of the company's senior executives mirror the fictional cartoon characters created and owned by the Walt Disney Company. This is, of course, both humorous and decidedly ironic.
We've met CEO Michael "Recruit To Infinity and Beyond" Johnson who kind of reminds us of this guy.
CFO John DeSimone is indeed a very crafty fellow who's opaque accounting disclosures might remind us of this guy.
Though not a Disney character, President Des Walsh can bull*^% with the best of them and so his brogue sort of reminds me of this guy.
Sadly, I do not have the talent to draw real cartoons like the brilliant Charlie Hebdo satirists gunned down in France yesterday. Still, I continue to believe that satirizing most of the nonsense distributed to the public by the ever deceptive Herbalife is a valid way to critique Herbalife. Hopefully, as many global citizens revealed yesterday as they marched in solidarity with the victims, the pen is indeed mightier than the sword.
As one might say:
Sadly, the world can be a wicked place.
Of course, this leads me to the latest character in the Herbalife narrative Ms. Pamela Jones Harbour.
Here is a picture of Ms. Jones Harbour. One should never judge a book by its cover, but Ms. Harbour certainly looks professional, accomplished, serious and capable.
Unfortunately, what you see isn't always what you get in Herbalworld. Last night, Herbalife's PR Department lead by newly appointed Alan Hoffman
released this little diddy on Twitter through @Herbalifetruth
Unfortunately, Mr. Hoffman's evidence in support of this release makes him look a little more like this guy than not.
Never one to ignore the facts, Bill Ackman and Pershing Square delivered a swift retort to Mr. Hoffman's release this morning.
Q. What does the evidence say?
Well for starters, here's one thing we do know. Pershing Square does not have any options expiring next week. Mr. Ackman has stated publicly that he has rolled his Put position in Herbalife to 2016.
So, let's call that Strike One for Mr. Hoffman.
Secondly, let's take a look at the difference between the meaning of the word "cancel" v. the word "postpone".
According to Merriam-Webster.com cancel means:
a : to destroy the force, effectiveness, or validity of : annul<cancel a magazine subscription> <a canceled check>
b : to bring to nothingness : destroy
c : to match in force or effect : offset -often used with out<his irritability canceled out his natural kindness - Osbert Sitwell>
d : to call off usually without expectation of conducting or performing at a later time <cancel a football game>
In contrast, the word "postpone" is defined as follows:
: to decide that something which had been planned for a particular time will be done at a later time instead
Turns out words are important.
Q. Did David Klafter "cancel" his meeting with Pamela Jones Harbour or seek to "postpone" it?
Q. Did this occur at the "last minute" as alleged by Herbalife?
Q. What does the evidence say?
Here is a link to a Press Release issued by Pershing Square revealing detailed correspondence between Pershing Square and Ms. Jones Harbour.
I've extracted the relevant portion of the correspondence for your review.
So much for "last minute". Seems to me a courteous heads-up a full week in advance.
Also, if there is one thing I can tell you about Mr. Klafter it's the following. He is very good with words and he knows what they mean. At one point in his original letter to PJH he called me "trenchant". Once I actually looked-up what the word "trenchant" means I was decidedly humbled.
This leads me back to Ms. Harbour. David Klafter is a serious cat. Certainly, it would be foolhardy of Herbalife to treat him as if he were this guy.
I actually think Mr. Klafter takes his work about as seriously as this guy. (That's Preet Bharara #seriousdude)
Yet obviously, Ms. Jones Harbour seems to think that Mr. Klafter and his colleagues are easily duped. That's why instead of offering to sit down with Pershing Square for a serious conversation about compliance Ms. Jones Harbour seems to have responded like this gal.
Yes folks, that's a picture of a Disney tour guide. Trouble is, Mr. Klafter isn't Krusty the Klown or Mickey Mouse.
Here is an excerpt from Mr. Klafter's original letter to Ms. Jones Harbour. According to Mr. Klafter, Herbalife has a number of problems he would like to discuss.
Personally, I like the "tip of the iceberg" metaphor. It seems apropos. Evidently, Ms. Jones Harbour doesn't seem to take Mr. Klafter's initiative all that seriously.
Q. How do we know?
Here's a copy of Ms. Jones Harbour's invitation to give David a tour.
Here's the thing. Mr. Klafter doesn't want a tour. What he wants is clearly articulated below.
Q. Why is this "flurrious" (my new word) PR exchange important if you are an investor?
For starters, what does the evidence show? Who is telling the truth about the events as they unfolded? Also, If you get evidence that somebody is capable of lying or spinning the truth, how credible can that person be in the future?
Here's what Thomas Jefferson had to say about lying and liars.
Secondly, how stupid does Herbalife think people are? If they publish non-truths, spin and half-truths into the teeth of the ever so well capitalized Pershing Square, what do they think is going to happen?
In less than 24 hours, Pershing Square exposed Mr. Hoffman's PR for the nonsense that it is.
Thirdly, does the company not know that government regulators are watching? What do you think the SEC or FTC or DOJ is going to think about this exchange? This is a publicly traded issuer that is using attack PR to launch false and misleading statements to the marketplace for the consumption of both retail and institutional investors.
Q. Is Herbalife out of its mind?
How many times will company management issue nonsense to the world before our government finally clamps down? Here's a list of just a number of misleading things the company has done.
- Tell Investors Nutrition Clubs are social clubs not Club 100 venues
- Bury and hide Universidad Del Exito from the public
- Issue wildly conflicting statements on retail sales and internal consumption
- Over-promise and under-deliver on eps two quarters in a row
- Overstate Venezuelan results with aggressive accounting
Sadly, I could go on.
Here's the point.
Herbalife is a totally incredible enterprise. They have been caught lying so many times that you can't trust a thing that they say. Still, the company is given an Enterprise Value of $4 billion plus by investors. That won't last for long.
If you are long, it might be wise to heed the following piece of advice.
If you are Pamela Jones Harbour, it might be a good time to get serious about the risks you have taken on as a Herbalife employee.
Bottom Line: Don't invest in people who don't tell the truth. You'll only get your capital churned.
Herbalife's intrinsic value of the common is $0.
Why? Its culture of deception is pervasive. Even the new employees have now been sucked in.
Look out below.
Disclosure: The author is short HLF.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.