NEW YORK Herbalife came out swinging Thursday against claims by hedge fund manager William Ackman that the business amounts to a pyramid scheme.
But Ackman didnt back down, saying in a statement that Herbalife distorted, mischaracterized, and outright ignored large portions of Pershing Square Capital Managements December presentation.
A series of Herbalife executives looked to refute Ackmans allegations during an analyst and investor meeting earlier in the day, laying out everything from how the business operates to who its customers are.
Last month, Herbalife announced plans to build a $130 million plant at a defunct Dell site near Winston-Salem, where it said it will hire 500 workers. The company received $1 million worth of state incentives up front, and could receive up to $5.5 million more in state tax breaks and $3.4 million in local incentives if it meets targets.
Critics have questioned the companys business model, which uses a network of distributors to sell its nutritional supplements and weight-loss products in more than 80 countries.
The defense put forth Thursday comes a few weeks after Ackman alleged Herbalife Ltd. was a pyramid scheme and that he was shorting the stock. Short-sellers make money when the shares theyre betting against decline.
Under a pyramid scheme, a company makes most of its money by recruiting new salespeople, rather than on the products that they sell.
Aside from Ackman, Greenlight Capitals David Einhorn also had raised concerns about Herbalifes business in May.
Herbalife President Desmond Walsh said Thursday that over its 32-year history, only one court has ruled that the company runs an illegal pyramid scheme. The ruling, which occurred in Belgium, is being appealed.
Walsh said that ruling has not hurt Herbalifes business in the country. He also balked at Ackmans claims that Herbalife uses a pop-and-drop approach to the markets it serves entering a market, making money as fast as it can and then pulling out and moving on to new markets. Walsh said this is not true and that much of Herbalifes growth is coming from markets it has served for more than 10 years.
Herbalife Chief Operating Officer Richard Goudis looked to debunk Ackmans claim that Herbalife is not a product company.
The executive said that the Herbalife invested $44 million into research and development, technical infrastructure and other areas to support its products last year.
Goudis also said Ackmans claim that Herbalifes shakes are more expensive than its rivals was caused by the hedge fund manager using a price-per-serving measurement that the company does not believe is accurate, and argued that Herbalifes shakes are competitively priced against rivals like GNC.
In defense against claims that Herbalife has few customers outside its distributor network, Walsh said the company has functioned primarily as a business-to-business seller and had not tracked its retail customer base.
To dispel Ackmans claims, Herbalife hired Lieberman Research to study its customers. A representative of the firm said that two of the studies, which were conducted among a sample of 2,000 adults over the age of 18, found that more than 5 million households purchased Herbalife products in the past three months.
Herbalife, which is incorporated in the Cayman Islands and based in Los Angeles, also maintained that it complies with the appropriate Federal Trade Commission standards and that its financial disclosures meet guidelines of the Securities and Exchange Commission.
Ackman said Thursday that Pershing will respond to every issue Herbalife raised during its analyst and investor meeting, but did not disclose when its next presentation would be.
Herbalifes stock hit a low of $24.24 in late December as a result of Ackmans allegations, the lowest point since July 2010.
Shares have lost close to half their value since the end of April.
The companys stock closed at $39.24 Thursday, down 71 cents. Staff Writer Ely Portillo contributed.
The Charlotte Observer welcomes your comments on news of the day. The more voices engaged in conversation, the better for us all, but do keep it civil. Please refrain from profanity, obscenity, spam, name-calling or attacking others for their views.
Have a news tip? You can send it to a local news editor; email firstname.lastname@example.org to send us your tip - or - consider joining the Public Insight Network and become a source for The Charlotte Observer.Read moreRead less