Our group is faced with a decision about whether to buy shares in Herbalife or to sell short stocks in the company. Herbalife International is a multi-level marketing company that sells nutrition, weight management and skin-care products. However, Bill Ackman of Pershing Square Capital who claims that Herbalife operates a "pyramid scheme" sold short this company's stocks. Conversely, Dan Loeb of Third Point Capital purchases 8.24% of HLF's outstanding shares. Therefore, through analyzing and comparing both views with sufficient information, we will determine whether to buy or sell short stocks in Herbalife.
Selling Short Stock:.
Bill Ackman asserts that Herblife operate "pyramid scheme " to obtain benefit primarily from recruitment rather than supplying any real investment or sale of its products to customers. According to the Ackman's presentation at the Sohn conference special event, 92% of the income of the distributors comes from recruiting. ("Who Wants to be a Millionaire ", 7) That means the distributors make "retail profit " not through selling products to the actual customers, but recruiting new distributors, and the recruiting reward constitute 90% of the profits. As the result, Herbalife is sued to be "illegal Pyramid scheme " in Belgium. Additionally, Herbalife provides the distributors a 25% discount on the price to private individuals for all products. ("Commercial Court in Brussels ", 6) This indicates that many customers use Herbalife products will become distributors. Thus, Herbalife overstates its profit through selling products to its distributors who were considered "stable customers " in the public. Pyramid Scheme also brought damage to Herbalife's distributors. In the pyramid scheme, 1% "achieve financial freedom " while others become the victims, since the money at top is made from the losses of people at the bottom. Due to the unequal wage structure, most distributors experience a high turnover rate.
Large portions of red meat and butter are encouraged, which conflicts with the studies that show a connection between high levels of saturated fat and heart disease. ... Metabolife, along with many other pills such as Herbalife, Adiphen, Thermalean, Lipodrene, Zymax, Thermoslim, Trim Life, Natural Trim, and Therm-Lift all contain Ephedrine as the active ingredient. ...