Pershing Square Pushes Ahead Despite Clean Herbalife Reaudit

Dec 17 2013 | 2:15pm ET

Pershing Square Capital Management's activist campaign against Herbalife will not be deterred by the clean bill of health given the nutritional supplements company by its new auditor.

PricewaterhouseCoopers said yesterday it had completed its review of Herbalife's books for 2010, 2011 and 2012 and made "no material changes" to the audits conducted by KPMG. KPMG was forced to resign as Herbalife's auditor in April after one of its partners admitted passing confidential information about the company to a friend.

The news sent Herbalife shares to near their one-year high, piling further losses on Pershing Square, which announced a $1 billion short against the company last December. The hedge fund, led by William Ackman, has already suffered some $500 million in paper losses on that bet.

The reaudit is "further validation of the company's financial statements and business model," Herbalife CFO John DeSimone told The Wall Street Journal. "Mr. Ackman's thesis is wrong."

But Ackman is sticking by that thesis: that Herbalife is a pyramid scheme and will be shuttered by federal regulators.

"It is not the role of Herbalife's auditor to determine if the company is a pyramid scheme," Pershing Square said. "Rather, that determination depends on whether distributors earn more from recruiting new distributors than from retail sales to consumers who are not distributors. The few Herbalife distributors that make money earn the vast majority of their profits from recruiting. Herbalife is a pyramid scheme that will be shut down by regulators."

Carl Icahn, an Ackman nemesis who holds a large long position in Herbalife, pronounced himself "very happy" about the reaudit.

"I don't think it was unexpected. It is a good company, it is still undervalued, it's a growth company which gives work to a lot of people and what Ackman says is nonsense."

PwC did find some "errors" in Herbalife's financials, revising down its shareholder equity in two cases and its net income in another.

Unbowed, Ackman reminded Bloomberg News, "Remember, Enron also had audited financial statements."


In Depth

Kettera Q&A: The Advantages of Alternative Investment Platforms

Oct 28 2016 | 5:52pm ET

The past several years have seen a distinct push towards easier and cheaper access...

Lifestyle

Midtown's Plaza District Fades As Manhattan Office Landscape Shifts

Nov 22 2016 | 6:32pm ET

Lower leasing costs, more efficient office space and the hope of projecting an image...

Guest Contributor

Nowhere to Hide: Why the Future of Asset Management Depends on Innovation

Nov 15 2016 | 6:55pm ET

Information technology has reshaped the asset management industry’s periphery,...

 

From the current issue of

Chicago-based independent futures brokerage and clearing firm R.J. O’Brien & Associates (RJO) has hired industry veteran Daniel Staniford as Executive Director, responsible for the firm’s institutional business development in New York and London.

AVAILABLE NOW at BARNES & NOBLE

NEWSTAND LOCATOR