Hedge funders Robert Chapman of
and John Hempton of
say that Herbalife's business is legitimate.
have made bets in favor of Herbalife and against Ackman.
"Despite beguiling and specious reasoning, Ackman will fail to influence/cause a material regulatory response or a HLF distributor exodus," writes Robert Chapman, in a
that celebrates a 35% return betting against Ackman.
Hempton of Bronte Capital simply argues Herbalife's earnings and ability to buy back stock can thwart Ackman's bet against the company, even if they are
as he writes.
More directly, analysts such as Tim Ramey of D.A. Davidson & Co. simply refute Ackman's allegations that Herbalife could be deemed a pyramid scheme by regulators such as the
Federal Trade Commission
or the SEC.
While Ackman argues 90% of Herbalife's profits come from distributors and not bona fide retail demand, Ramey of D.A. Davidson argues in a January note to clients the majority of Herbalife's earnings come from retail demand, disqualifying it as a pyramid scheme.
In previous research reports, Ramey has
Ackman's understanding of Herbalife's retail appeal. Still, the analyst has previously left open the prospect of a distributor exodus. In recent days, Herbalife distributors have expressed confidence in the company to
The Wall Street Journal
, in on-the-record interviews.
Ultimately, Ackman's accusation that Herbalife is a pyramid scheme isn't likely to be solved in a point-by-point rebuttal of Ackman's 300-plus-age short thesis in the company's Jan. 10 presentation, according to Ramey of D.A. Davidson, who writes in a client note, he expects a more high-level business overview and greater detail on the company's distribution between retail and distributor earnings.
For more on Ackman's Herbalife short, see why
analysts are getting personal
. Also see why Ackman's short may be similar to a bet against the shares of
bond insurer MBIA
-- Written by Antoine Gara in New York