“Greed is good” – Gordon Gecko.
While Mr. Gecko was a fictional movie character, Bill Ackman is very real. However, the similarities are eerie. Ackman is a billionaire hedge fund Wall Street Titan who has made it his own personal mission to bring down the evil nutrition company, Herbalife. Almost as sexy as Teldar Paper.
Who is Herbalife? A 35 year old American company doing about $5 billion a year, with 8000+ employees, and 90+ products. The main product is a health shake. Others are weight loss products, skin care creams, sports drinks, and a smorgasbord of nutritious stuff.
So why would a Wall Street billionaire want to take them down? Good question. I revert to the wisdom of Gordon Gecko, but Mr. Ackman may disagree. He apparently hates, and I mean really hates, multilevel marketing. You know, MLM’s? Distributors and sales people inviting friends and family to corny meetings and moving products through about a zillion American garages. And by the way, selling tons of products this country purchases and produces.
I can make fun of MLM’s because I bought that Amway tee-shirt years ago. My wife and I, didn’t go diamond or make a million. In fact, we lost that tee-shirt and spent a lot more than we ever made. Amway didn’t force us to do it. We chose to sign up and buy into it. So, it didn’t work. A lot of things don’t work out. I tell my kids all the time…life’s not fair…no whining. Just because Amway didn’t work out for us, didn’t mean the products weren’t good. I still answered an alter call at an Amway Sunday service and changed the direction of my life forever. That was worth it.
With my history, you’d think I’d be right there with Geck…I mean Ackman. Crush Herbalife! Just another multi-level using the little guy, right? Wrong. In 1979, the Federal Government declared the Amway business model legal. Ever since then, all MLM’s that want to remain open for business have mimicked that model. Herbalife is no different. They obviously provide a product that people want to the tune of $5 Billion a year, say no more.
What is Ackman’s beef with Herbalife? It is spelled out in great detail in a fantastic article in Fortune Magazine. Apparently, Ackman’s got some kind of vendetta against MLM’s in principle and especially Herbalife. On December 19, 2012 Ackman’s company took a $1 billion short position in Herbalife in an attempt to crush them and actually send them into bankruptcy. Herbalife stock lost 10% in six seconds. So much that it triggered alarms and trading was temporarily suspended. The war had begun.
One thing Ackman didn’t anticipate was Herbalife CEO Michael Johnson is a fighter. Trained in the happy world of Disney, Johnson, a health nut in his own right, who rides a bike more than 30 miles to work, didn’t take too kindly to Ackman’s attempt to crush everything he’d worked for. Johnson has fought back. Herbalife is a more streamlined, more agile, more cleanly run, than any network based business out there. The attack from Ackman has forced Herbalife to look at every aspect of their business. When you go to war, you don’t take unnecessary gear. Herbalife and Johnson have been at slugging it out for three years. They are lean and mean…at fighting weight.
That fact has to be a bit unsettling for Ackman. His dream of running a mamby-pampy MLM shake company out of business and making another billion are slipping away. Ackman is getting desperate and desperate people do shady things sometimes. Sometimes they call up their congressman and coerce them. Other times, they spend a million or more on lobbyists and DC back room deals.
Can you say Crony Capitalism?
I don’t care if a slime ball like Ackman takes a big short in a company. Guys like him do that all the time. The problem stems from the fact that when Ackman failed in his plan to destroy Herbalife, he turned to Government for help. What kind of help? The kind that uses the powerful arm of the federal authority to do what he couldn’t, crush Herbalife. This war isn’t over by a long shot. Ackman will not give up…either because of his passionately held activist views or the fact that he is Gordon Gecko in the flesh. Johnson will not give up…because he has made Herbalife his life. It is his to protect. It’s not just a company, its part of him.
When two titans of industry like these guys go head-to-head, you know there’s going to be blood in the water, you’re just not sure whose it’s going to be. Let’s just hope that blood draws some attention. Rep. Sean Duffy (R-Wisconsin) is the Chairman of the House Financial Services Subcommittee on Oversight and Investigations. Wow! Long handle. Anyway, Rep. Duffy should call for some hearings to determine if our fine friend Mr. Ackman, is guilty of crony capitalism or insider whatever. The Financial Services committee could be looking to see if Ackman’s actions crossed the line from free market activism to purchasing the necessary congressman to do what he believes needs done. I think if Ackman could get his money back, he would do it, nothing has gone as planned. Herbalife has actually strengthened itself.
“This isn’t about Herbalife’s business model,” Michael Johnson said in the Fortune piece. “This is about Bill Ackman’s business model … This is totally wrong what’s taking place … This is blatant market manipulation.”
So what exactly does a Hedge Fund create?
Bill Ackman…Hedge fund baby…it’s time to forget Herbalife and simply Getalife!
S.C. (Steve) Sherman grew up an Iowa farm kid. He graduated from the University of Iowa and lives and works in Hawkeye country. Steve is an author, popular radio commentator, and former Iowa House candidate. His articles have appeared nationally in both print and online. His most recent novel, titled Mercy Shot, can be found on Amazon or at www.scsherman.com Steve can be reached at firstname.lastname@example.org