Bill Ackman, founder and CEO of Pershing Square Capital Management was explaining his bets in Herbalife Ltd. (NYSE:HLF) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and while explaining he also went in depth about his strategy.
While talking about Herbalife Ltd. (NYSE:HLF), Ackman was asked about the ongoing FTC investigation and its impact. He said the FTC investigation might be significant because to launch a formal investigation, FTC usually watches for a period of 15 months It also needs a vote of commissioners and it needs a majority there. He also mentioned about the press reports of investigation launched by the FBI and the Department of Justice. He further added about the investigation:
“When you go after a criminal enterprise, you go after the weaker links in the chain. When they go after the big hedge fund they tend to go after the analyst before they go after the CEO. And in this case the top distributors I think are very vulnerable”
He thinks that the distributors were not the only ones at fault. He also mentioned about the so called Mark Hughes bonuses being paid to the top 50 distributors every year by Herbalife Ltd. (NYSE:HLF).
When Ackman was asked if it was not a working model how could it survive for 30 years as usually Pyramid schemes don’t stay around for 30 years, he had this fitting answer:
“You have to be very good. This company almost disappeared in 2000 when the founder died. The first question you ask is if it were really a weight loss company, why did the company almost o out of business when the founder dies?”
He also mentioned that Herbalife Ltd. (NYSE:HLF) was promoting a “so called business opportunity” fraudulently and that there are approximately 7 billion people in the world today and the company has to replace around 2 – 3 million distributors every year with 90 percent quit rates so it can still run for a long time without scrutiny. Ackman said even if Herbalife Ltd. (NYSE:HLF) were to close tomorrow, his company would get $2 billion and that he lost a lot of money due to the investigation reports in the press.
He specially mentioned about the stock buyback program introduced by Herbalife Ltd. (NYSE:HLF) after the investigation started. This program helped increase the prices as the company is buying the stock for higher prices while most companies offer buyback at a lower price. That is how the stock of Herbalife is gaining value even after the reports of investigation.
Ackman was also questioned about the Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and their joint attempt to buy Allergan, Inc. (NYSE:AGN). He was questioned about the way the deal was handled and that a lot of people feel that something is wrong with the deal as he is getting the inside information and getting the most benefitted. Ackman answered that and he started with:
“And the analysis is who is being helped and who is being harmed? Who is being helped are a 100% of Valeant shareholders, certainly 90.3% of Allergan shareholders without a doubt.”
He also cleared the air on the stock price they got from Valeant Pharmaceuticals Intl Inc (NYSE:VRX) for Allergan, Inc. (NYSE:AGN) shareholders and said that he wanted Valeant to raise the bid higher and he got the stock price locked to $180 per share to be given to all the shareholders and his firm would take $20 less per share and his company took approximately $600 million less which went to the other shareholders.
Ackman cracked the deal with the condition that other Allergan, Inc. (NYSE:AGN) stock holders get $180 per share in cash and stock and his firm gets 100% in Valeant stock and the only way his company can make up for those lost $20 per share is when Valeant Pharmaceuticals Intl Inc (NYSE:VRX) stock price raises.
However, despite that, today, it was announced, that despite a raised offer, Ackman’s and Valeant’s offer was rejected by the company.