Ackman knew or should have known he would receive push back from the Herbalife organization. If Herbalife is anything, it's a marketing machine of epic proportion. Herbalife's stock traveled full speed on the volatility highway once again when news broke of hedge fund manager Daniel Loeb accumulated a large bullish position.
Loeb's fund now controls more than 8% of Herbalife stock. The total amount is about $350 million, a far cry from Ackman's reported billion dollar short bet, but someone is going to walk away from this one with a black eye at the very least.
With the many big names taking a stand for and against the company, it's only a matter of time before
Lions Gate Entertainment
produces a movie about the unfolding events. Ben Affleck can play Bill Ackman and George Clooney will play Daniel Loeb. Herbalife's CEO Michael Johnson can be played by Brad Pitt, and not the
Brad Pitt, but the
Affleck and Clooney will bring to the silver screen all the battles waged with billions of dollars up for grabs to the winner. In the end, Clooney will ride off into the morning desert with suitcases full of cash, but it isn't his financial brilliance that wins the fight.
What wins this battle is the army of committed distributors with their livelihood at stake and their backs against the wall. Herbalife is an unparalleled marketing machine that knows how to pitch a product. You don't become a $4 billion network marketing company if you don't excel at selling.
Herbalife will host an analyst conference (aka sales presentation), and already has released a
video that humanizes Herbalife with projection of the moral high ground in the fight against short sellers. In terms of emotional currency, the video accomplishes the objectives that Herbalife is a quality company, managed by caring people and they want to improve the health of their customers. Oh and yes, you can make a buck or two selling the product if you work hard at it. Here is the video:
It's well done, and at the caliber one would expect out of massively successful network marketing company. The video doesn't leave a lot of room to take shots at their claims. I understand it's all about marketing, but I have to give them credit, disinterested parties will likely view the company in a positive light after watching. Not everyone will be as impressed with the message as I was.
The Wall Street Journal
, Hedge fund manager Whitney Tilson's T2 Partners is shorted Herbalife in part based on Ackman's presentation. "Pershing Square's analysis of Herbalife is the most remarkable piece of investment analysis I have ever seen. Simply astonishing" Tilson said.
I am not sure that Tilson and I watched and read the same presentation because when I was finished I had the opposite reaction. In
Will Herbalife End Up a Penny Stock? I wrote "I read the presentation and listened to Ackman state his case. I wasn't convinced and finished with the impression that I just read a "hit piece" relying more on emotion than logic" and "For example, the percentage of insurance salespeople who make more than $100,000 a year is probably similar to the percentage of successful Herbalife representatives."
I looked at the numbers, and evidence, and entered a bullish position. The option premium as a result of the incredible expansion in implied volatility sealed the deal and in less than a week later I exited the majority of my position. When the January options expire I expect I will be out the rest of the position.
Will the shares continue to rise? Maybe, but this isn't my typical type of long term investment. I don't know why Ackman and Tilson believe a profit target of zero is realistic anytime soon, and if they don't believe it's going to happen soon, why didn't they cover at least part of their short while the price was under $30?
These guys have been around long enough to have watched their share of dead cat bounces and bear rallies to know a move from under $30 back up to $40 was a realistic possibility. If they didn't act on that, what other miscalculations are happening? Loeb hasn't illustrated anything but perfect timing so far, and if his luck continues, he is going to slap Ackman upside the head in a way that Herbalife's CEO Johnson would love to do himself.
At the time of publication the author is long HLF.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.