Saturday, August 9, 2014
Bill Ackman's new best friend: Vladimir Putin
The news of the day is that Vladimir Putin has banned the import of Western food into Russia.
Whilst nobody has said it yet this is almost certainly negative for Herbalife. Herbalife has a business in Russia and to the best of my knowledge has no manufacturing in Russia. Its not huge - Europe, Middle East and Africa is less than a sixth of Herbalife globally - and Russia is likely a very small part of that.
However I would be surprised if the EMEA segment did not shrink next quarter.
There are of course in Russia a bunch of distributors who have built businesses in Russia distributing protein shakes, running clubs and fitness businesses and the like. Their businesses will now fail - and it will not be the fault of Herbalife.
The miss will be of great benefit to Bill Ackman who is short this non-pyramid scheme and - at least on this trade - needs all the help he can get.
Bill Ackman will get some cheer from his new best friend Vladimir.
Sometimes the cards land right for a fund manager.
There are big problems closing a successful and honest direct selling organization. Many people have built legitimate businesses selling the product. Vladimir has no moral scruples but Herbalife (despite their reputation) do.
Herbalife has distributors in Venezuela who have built successful businesses there. There are now very strict currency controls in place - Herbalife sells product into Venezuela but can't get the money out. The currency they do have devalues fast. If they buy any property with the money its likely to get nationalized.
As a shareholder I wish that Herbalife would simply stop sending their product to Venezuela. Anything they send there is frankly lost.
However Herbalife feels integrated with their distributors - and responsible for them. To abandon a country is (morally) hard for a direct selling organization and Herbalife has a hard time doing it.
Vladimir Putin not so much.
What Bill Ackman wants the FTC to do in America is destroy the business of tens of thousands of people.
I will let you judge the morality of that.
Post script. When I started on Herbalife I believed every word Bill Ackman said - and I told the world so. But I was happy to own Herbalife for the bounce.
I have since become convinced that Bill Ackman is wrong on every substantive point. This is not a pyramid scheme - instead there are millions (maybe tens of millions) of genuine consumers - and tens of thousands (maybe hundreds of thousands) of people who have built legitimate businesses.
I believe the short case is aiming to destroy these businesses to meet the fantasy of a narcissistic hedge fund manager and the shorts in this case are deeply immoral.
Over time I have noticed the company being moral to a fault - most notably in Venezuela where they support the existing distributor base at substantial financial cost.
It is about time the Herbalife longs spelled out what is happening here. People whose evidence is incomplete to the point of fabrication have grabbed the moral high-ground whilst they take an immoral argument.
It will be okay in the end - the longs will make a fortune and the shorts will have their finances redistributed. However I am getting a little frustrated at people suggesting that I have the moral low ground.
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