Ackman: No Plans To Reverse Course on Herbalife

Jul 14 2016 | 10:26pm ET

By Jennifer Ablan (Reuters) - Billionaire investor Bill Ackman said on Thursday that he was still betting against Herbalife shares and that the company needed to make "material changes to its incentive structure."

Ackman has waged a four-year campaign against Herbalife, making a $1 billion short bet against it in 2012 and accusing it of running a pyramid scheme which pays members more for recruiting new members than for selling the company's supplements and weight-loss products.

Short sellers borrow securities to sell on the belief that the price will decline and allow them to be repurchased for less later.

Ackman, the founder and chief executive of Pershing Square Capital Management, said in a CNBC interview that the carrying cost of his $1 billion bet is about $20 million.

Ackman said he also believed Herbalife and the government were "quite close" to resolving a regulatory investigation into whether the company was operating a pyramid scheme.

Ackman, said that regardless of the outcome, the U.S. Federal Trade Commission probe was unlikely to end well for the company because its business model is not built upon actual retail sales.

"The incentives of the Herbalife marketing plan, the only way you can make money at Herbalife ... is by recruiting other people very heavily and getting them to invest thousands and thousands of dollars," Ackman said. "That is the only hope you have of making money. And that's because of how the incentive of the marketing plan work."

Herbalife did not immediately return requests for comment.

Ackman said he believed that Herbalife would not be taken private. "I feel very good about our investment. I think no private equity firm is going to buy this company," he said.

Herbalife shares edged 0.54 percent higher to $59.73 late Thursday afternoon.

Ackman, whose Pershing Square owns 9 percent of Valeant Pharmaceuticals International, defended the sale of almost $100 million of the Canadian drugmaker's shares by former Chief Executive Michael Pearson.

He said Pearson had acquired stock on margin to make a $50 million charitable donation to Duke University. "When the stock collapsed, he got a margin call from Goldman Sachs," Ackman said, forcing Pearson to sell more Valeant shares than he had planned.

Ackman said he had no plans to sell Valeant's core assets like Bausch & Lomb. "It's a franchise you build on."

Valeant shares rose 6.5 percent to $23.03.

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