Two years after first accusing Herbalife Ltd (HLF) of fraud, billionaire investor William Ackman reiterated on Monday that he expects the nutrition company’s stock price to collapse to zero and said it would happen within a year.
Ackman, who runs hedge fund Pershing Square Capital Management LP, has been betting against Herbalife shares since 2012, claiming the company is a pyramid scheme–where new investors unwittingly fund the profits of older investors. Regulators began investigating the company early last year.
“It’s an embarrassment to the country that this company exists,” he told reporters after speaking at a church gathering in Chicago. He said the effective value of his bet is $1.2 billion.
Herbalife has become one of America’s most closely watched companies after Ackman and fellow billionaire Carl Icahn squared off with enormous bets on its future, with Icahn betting on its success. Icahn in November said he believed Herbalife’s stock was undervalued and that the company still had “a good business model.”
Herbalife has vehemently denied Ackman’s allegations that its business is a pyramid scheme. The company described his church appearance as “the latest stunt in Ackman’s ongoing campaign to drive down our share price for profit.”
Herbalife will fail because increased transparency about its practices, due to scrutiny from Ackman and regulators, has made it harder for the company to recruit distributors for its products, Ackman said.
Herbalife’s stock price closed at $32.73 on Monday after dropping 52% last year. Although that’s a far worse performance than either the Dow Jones Industrial Average or S&P delivered last year, it still isn’t the ‘deathblow’ that Ackman promised last summer. That said, the stock hasn’t been able to stabilize meaningfully since Ackman started his attacks, and is now trading at its lowest level in nearly two years.
Continued declines will motivate regulators to accelerate their probes because it would be an “enormous embarrassment” for them if Herbalife collapsed before the government shut it down, Ackman said. If investigations heat up, the company’s stock will extend its losses, he predicted.
“I’d be surprised if it’s not gone within a year,” he said about Herbalife.
Ackman said he has not yet made any money on his bet against the company and projected he will rake in more than $1 billion if the stock price drops to zero.
“We shorted it at $47 but because of option premium, borrowing costs, dividends, investigative expenses, our break even is around $31, $32,” Ackman said. Shorting involves selling borrowed shares to buy them back later at a lower price.
“We’re just at the margin where every dollar starts to become meaningful,” he added.
