Loeb Lays Out Argument in Favor of Herbalife (HLF)
In an investor letter today, Third Point's Dan Loeb made his argument in favor of Herbalife (NYSE: HLF). The letter follows news this morning that Third Point has accumulated an 8.2 percent stake in the multi-level marking company. The announcement stirred controversy in the hedge fund community and pits Loeb against his friend William Ackman, who claims Herbalife is a ponzi scheme.
In the letter, Loeb said Ackman's ponzi scheme accusation lacks merit. He also said Ackman's suggestion that the FTC would act against Herbalife was misguided.
"The short thesis rests on the notion that the FTC has been asleep at the switch, missed a massive fraud for over three decades, and will shortly awaken (at the behest of hedge fund short seller) to shut down the Company. We find this thesis to be preposterous, particularly since the FTC has been sensitive to frauds of this kind," said Loeb.
Loeb also counters Ackman's argument that Herbalife products are overpriced.
"No one believes Starbucks is a scam because you can buy a cheaper cup of coffee at your local bodega. A key contributor to Herbalife's growth has been its distributor-led 'Nutrition Clubs', where consumers can purchase single servings of the Company's signature beverages. The short seller's assertion ignores the significant value customers place on every consumer brand and its community 'experience' – whether at a Herbalife Nutrition Club, a Starbucks, or a corner bar."
Despite making a compelling agreement, Loeb's greatest argument is no doubt the size of his multi-million dollar bet. At present Third point owns 8.9 million shares, most of which was accumulated during the Ackman-related selloff.
In the letter, Loeb said Ackman's ponzi scheme accusation lacks merit. He also said Ackman's suggestion that the FTC would act against Herbalife was misguided.
"The short thesis rests on the notion that the FTC has been asleep at the switch, missed a massive fraud for over three decades, and will shortly awaken (at the behest of hedge fund short seller) to shut down the Company. We find this thesis to be preposterous, particularly since the FTC has been sensitive to frauds of this kind," said Loeb.
Loeb also counters Ackman's argument that Herbalife products are overpriced.
"No one believes Starbucks is a scam because you can buy a cheaper cup of coffee at your local bodega. A key contributor to Herbalife's growth has been its distributor-led 'Nutrition Clubs', where consumers can purchase single servings of the Company's signature beverages. The short seller's assertion ignores the significant value customers place on every consumer brand and its community 'experience' – whether at a Herbalife Nutrition Club, a Starbucks, or a corner bar."
Despite making a compelling agreement, Loeb's greatest argument is no doubt the size of his multi-million dollar bet. At present Third point owns 8.9 million shares, most of which was accumulated during the Ackman-related selloff.