Herbalife stock tumbles for a 4th day on ‘pyramid scheme’ claims
Shares of Herbalife Ltd. got pounded for a fourth straight trading day on Wall Street, as investors sent the stock diving an additional 5% on Monday.
The Los Angeles-based marketer of nutrition powders, bars and vitamins has seen its stock price plummet since New York hedge fund manager Bill Ackman last week called the company’s business a pyramid scheme. Its shares have lost about 40% since Ackman lodged his allegations.
After falling as much as 10% early Monday during Wall Street’s abbreviated Christmas Eve session, the company’s shares were trading midway through the session at $25.83, down $1.44, or 5.3%, from their closing price Friday.
Major U.S. stock indexes were meanwhile down about 0.3%.
Herbalife, a so-called multilevel marketing firm that sells its products through a network of individual distributors in more than 80 countries, has been on the defensive since Ackman, head of Pershing Square Capital Management, made his detailed case during a presentation in New York last week.
Ackman has said he will continue shorting, or betting against, Herbalife’s stock until it reaches zero.
Ackman’s reputation on Wall Street could lead other investors to follow suit in selling or shorting the stock, said Jim Liew, a former hedge-fund insider who is now a professor at Johns Hopkins Carey Business School.
“He’s pretty spot-on on this one,” Liew said of Ackman’s presentation. “It’s just a matter of time before the investment community figures it out.”
Some analysts who follow the stock, however, have expressed doubts about Ackman’s claims. “Ackman gets an ‘A’ for effort and style points,” Tim Ramey, an analyst for D.A. Davidson & Co., said in a note quoted by Bloomberg News last week. “Not much substance in our view.”
Herbalife has scheduled a Jan. 10 meeting with analysts and investors in New York to confront the allegations. The company announced it retained Moelis & Co. as its strategic advisor.
“We’re going to disabuse the financial community of a presentation that was based on falsehoods and a misunderstanding about our business,” Herbalife Chief Executive Michael Johnson told The Times last week. “It’s just so completely wrong.”
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