After strong criticism of Herbalife, a multi-level marketing company, the CEO's response is wanting.
Bill Ackman, CEO of Pershing Square Capital Management, called the weight management and nutritional supplement company a "pyramid scheme." In a 334-slide presentation, Ackman explained why his hedge fund is shorting the stock, with a price of 0 and anticipation of the company's demise. Ackman said he felt so , "I don't want to make any money from this, 100% will go to the Pershing Square Foundation."
Calling a company a "pyramid scheme" is a harsh blow. Such companies prey on people who buy into a business with little hope that they'll make any money. More typically, investors who buy in late lose everything.
The LA Times published CEO Michael Johnson's description of the company's reaction to Ackman's presentation:
"About 15 company officials, including Johnson, sat at a conference table in company headquarters and watched Ackman's presentation, growing angrier as he made his case.
"'There were a lot of cat-calls. He's not up to speed on the Herbalife of today,'" Johnson said. "'It was so filled with inaccuracies I haven't got the time. Our distributors get compensated for selling the product, not for recruiting.'"
Although Johnson said that the company would investigate the claims and respond in January, no other explanations or counterclaims were offered.
- Review Ackman's slide presentation. What principles for visuals for an oral presentation does it follow? What are Ackman's strongest and weakest arguments?
- How should Herbalife executives respond now?