Betting on Zero

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1

Bill ackman:

this will be the

most important presentation

That I've made in my career.

So, how's that for

raising expectations?

Man:
Uh,

what are we gonna learn?

Ackman:
You're gonna learn

why herbalife is

going to collapse,

And that's

a pretty strong statement,

But this is the largest fraud

in terms of scale,

of countries involved,

Harm to people...

Man:
And right now, we are

joined by the ceo of

herbalife, michael johnson.

He has called in.

Michael johnson:

First of all, guys,

This isn't about

herbalife's business model.

This is about bill ackman's

business model.

This is blatant

market manipulation.

We're not a pyramid scheme.

That's a bogus accusation.

This is a legitimate company.

We've been in business

32 years.

Millions of customers

around the world.

Mr. Ackman's proposition

That the United States

will be better

when herbalife is gone...

The United States

will be better

when bill ackman's gone.

Good. How're you doing?

Um, clock, countdown clock.

Do you want time of day,

or do you want to count time?

What do you mean?

-We have a speaker timer.

-During the presentation

itself...

Just count going up.

-Count going up from zero?

-Yeah.

You got it. Thank you, sir.

Ackman:

the company is

clearly panicking.

They know what we have.

Male reporter:

They say, bill, that

herbalife continues to face

An unprecedented attack

To support

your billion-dollar bet

To manipulate and drive

herbalife stock price to zero.

Female reporter:

Seems like all of wall street

is against you.

Man 2:
Ackman is a liar.

You scare

the hell out of people,

get the stock down,

And tells the world

how great he is.

Female reporter:

You still believe

this company is worth zero?

Ackman:
Yes.

The company is the goose

that laid the golden egg.

And trust me,

I have never seen a goose

put out so many golden eggs

- In my entire life.

Narrator:
For two years,

hedge fund ceo bill ackman

Has been managing

a massive short position

in herbalife.

Betting that company

would soon fail,

And that, as the price of

herbalife stock

plummeted towards zero,

His investors

in pershing square

would make a fortune.

I just need to be authentic.

-Make you look like a zombie?

-Exactly.

Ackman:

we are managing capital

for others,

And most of the time

We buy stakes in companies

and work to make them

more valuable.

But a couple times

in our history,

We come across a company

we think is causing harm

Operating illegally, uh,

And we can make money

betting against that company.

How much money have you spent

betting against herbalife?

Uh, we have a short position

of over a billion dollars.

On the makeup, I'm kind of

a less-is-more guy.

-Yeah.

-Okay.

Ackman:

I've had one other very big

public short in my career,

Which was this short I took

in a company called mbia.

We were saying that

a aaa-graded company

was basically insolvent.

People thought

this was absurd.

The company accused us

Of spreading false

and misleading information

about their business.

Mbia took seven years

for us to be proven right.

And ultimately,

the company collapsed

during the credit crisis,

Because of exposure

to subprime mortgages.

A reporter named

christine richard

At bloomberg news

got interested in the story,

And then ended up

writing a book

About my battle with mbia

called confidence game.

And then she joined

an independent research firm

To focus on short ideas,

Companies to bet against.

And she called me one day

and said, "bill, I think

I've got the next mbia."

Hello. I'm michael johnson.

Chairman

and chief executive officer

of herbalife.

And it's my pleasure

to be your guide

for our tour of herbalife.

In 1980, our company founder

mark hughes

started with a dream.

That dream was

a mission for nutrition.

For people to improve

their health

And also to improve

their financial well-being

Through our direct sales

business opportunity,

Which, we believe,

is the best in our industry.

Herbalife is a multilevel

marketing company,

Which means you can earn

on your own sales,

And if you're a supervisor

or above,

On the sales of

those you introduce

And sponsor

directly or indirectly.

Our products are available

exclusively through you,

Our independent

herbalife distributor.

That's why we have a rule

About not selling through

retail stores, outlets

or on auction sites.

Christine richard:

If you look at it,

on the surface,

It's a wildly

successful company

Selling high-priced

nutritional supplements.

But going back to the '80s,

There were questions about

how the products were pitched.

You know, extreme promises

that were made

about the products,

And of course,

always the extreme promises

about the income opportunity.

I was really committed

to making herbalife work,

And I was like,

"I'll do whatever it takes.

"whatever it takes,

I'll do it."

I'd always come out

fishing just way below

And I always spotted

this particular house

With the staircase going down.

As I grew in herbalife,

I ended up buying it.

Man:

I step out of the ferrari,

the bentley, whatever,

People go, "what does

that guy do for a living?"

And I go, "I'm an herbalife

independent distributor."

And people are

absolutely amazed

that that's what I do.

It's an incredible

quality of life.

So far, in the last 90 days,

the company has paid us

over $15,000 part-time.

And I make, right now,

I can't believe it myself,

Over $8,000 a day

To over $3,000,000 a year.

It's unbelievable!

If I can do it,

I've made a small fortune,

Actually a large fortune,

with the company,

Anyone can. It's simple.

Richard:
I think

it's a fraudulent pitch,

But it persists

over a decade, so...

It seems like

it should be something

That wall street investors

would want to take a look at.

Ackman:
I was

appropriately skeptical,

Which is the approach

we try to take

With any investment,

long or short,

And then a belgian court

found herbalife

To be a pyramid scheme

in 2011.

I thought that was kind of

a materially

interesting development,

And that's what motivated

the research.

And this is a case

where the more layers

of the onion you peeled away,

The more interesting, uh,

it became.

You follow what I say,

write this down,

You're gonna make

a minimum of

$50,000 this year.

That's

the least amount of money

that you're gonna make.

The second year,

you'll make $125,000,

And that's

the least amount of money

that you're gonna make.

Narrator:
In 1986, founder

mark hughes and herbalife

Received

a permanent injunction

from the state of california,

Barring them from making

false income

and health claims.

Nevertheless, the company

continued to thrive.

But 14 years later,

hughes was found dead

in his malibu home

Of an overdose of

antidepressants and alcohol.

And a group

of private investors

Soon took control

of herbalife.

Before listing the company on

the new york stock exchange,

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