The mistake for shorts is that they assume HLF is a nutrition, health or some consumer goods business. Hence it is illegal by those metrics. It is not in that business. It is in the same legal business as Hollywood or many of the Government Lottery Commissions. They are selling a dream, most people loose but some win. And like the lottery commission they can reward the winners a lot but not all of the cash the people who loose and keep the profit which is distributed among the stakeholders. Everything Ackman says is true but he will throw in the towel. Why should there be a monopoly on selling dreams. It is highly speculative for Ackman to assume that legal action will close it down. He is very likely assuming a pre legislative position and hence highly uncertain.
Thesis & Catalyst For Herbalife Ltd. (NYSE:HLF)
The time to sell is when Ackman is covering his shorts. To the extent he used long puts to limit his downside to the premium that was smart but likely will see those expire unless he has appetite to renew. He is being squeezed by the increasing number of longs so that his only unwind has to come from them whether or not HLF go private the holdings in a few key hands make it almost like that. The longs a playing a zero sum game which is lets gang up and take Ackman's money, everything else is a sideshow. He is a big boy.
I do agree Ackman's point of view if CDS were to trade tight that offers a highly asymmetric way and appropriate way to play a highly speculative position that the company should shutdown were such a situation come to pass. Reinvest some of the long profits into long CDS should there be a leveraging event that creates deliverable debt.