But the Humbleness Part I Had to Learn

It all started with my blogpost on December 19th in which I posited that Shane Dinneen wasn't active at Pershing Square any longer. After posting, I received an email from Pershing's new PR rep over at Rubenstein requesting that I immediately call her to discuss the matter. Before we spoke I received another email saying that there were serious "factual errors" and she again requested I call her immediately. After I shot her a quick email to say I'd be happy to call, she asked that I take down the post about Bill Ackman and Shane Dinneen.

I tried calling her a couple times but got her voice mail so before we spoke, I sent an email that outlined 14 basic beliefs I have formed over the passing months with respect to Herbalife and Pershing Square. I wanted to provide her an opportunity to ruminate on those points so that we'd have a fruitful discussion. I welcomed a direct response from Pershing and offered to include that response on the blog. We finally spoke that evening.

In our discussion it became very clear to me from the outset that the only factual error she wanted to discuss was my use of the word "fired". At the beginning of the conversation she stated that although she appreciated the 14 points I'd sent she would only be commenting on my recent blogpost. She was crystal clear with respect to the fact that Shane Dinneen was not "fired". I made it very clear to her that I was of the belief that Shane was still actively on payroll and thus technically still an employee of Pershing, but that he was not actively involved in managing the firm's Herbalife position. When directly asked, she neither confirmed nor denied if Shane had been and would continue to be on an extended hiatus and continued to focus on my use of the word fired. We went around like that for a few minutes, with neither one of us really making any headway. She continued to reiterate that I couldn't say that Shane had been "fired" and I continued to reiterate that Pershing was hiding behind semantics and that Shane had not been active at the firm, nor contributing to the Herbalife position for some time. At her request, I agreed to modify the post to be clear that Shane was not "fired" and in turn I requested that Pershing respond to the beliefs I'd outlined. I also offered to post their response directly to my blog. She said that she'd get a response together from Pershing and we ended our conversation.

The next morning I still had not heard from her, so I shot over a quick email to check whether she thought Pershing would be sending their response to me soon so I could be sure modify my blog. The response I received was as follows:

"You have harmed the reputation of Pershing Square Capital Management and defamed one of its employees. Pershing Square will not make a statement to anyone who won't identify themselves and/or is not part of a legitimate news outlet.
We demand that you remove the language in your blogpost suggesting that Shane Dinneen was fired or that he is not part of the Herbalife team at Pershing Square Capital Management. Your statements are 100% wrong and indeed libelous. If you are interested in the truth then you will modify your post to reflect the facts."

I have to admit that I was a little disappointed with that response. I was left with the impression that Pershing would have some sort of substantive response and those measly five sentences just didn't cut it. So I sent another email on December 20th (below) to which Pershing has still not responded. I then waited over the weekend and on Monday sent another quick email simply asking if they would respond further. Granted, Ackman did send a special six page letter to investors on December 23rd, but I have yet to receive a response to either of those two emails. 

"Thank you for your email. I am a little confused though. You are saying that Pershing will not make a statement to anyone who won't identify themselves, but you are simultaneously making a statement to that same unidentified individual (me).
If Pershing prefers to go on the record with an identified journalist that is part of a legitimate news outlet I am happy to put you in direct contact with them. Say the word and they'll dial your phone immediately.
I am in fact very interested in the truth, which is precisely why I am asking that Pershing provide a response (beyond the response you've already provided, yet unwilling to provide to an unidentified individual). I provided you with a 14 point outline of my beliefs (Shane's lack of involvement with Pershing's Herbalife position is one of them). I specifically noted to you that I believe that Mr. Dinneen is still on payroll and an employee of Pershing Square, but that he has been on a continued hiatus and not active in Pershing's Herbalife position.  It is very simple: has Shane been on a hiatus and not actively involved in the Herbalife position? If not, will his hiatus continue?
Again, I submit to you my beliefs below and ask that Pershing respond to them. As I told you last night, I will include your response on my blog as well as modify the previous post. You are stating that I am wrong, but simultaneously unwilling to provide me any reason to believe that I am wrong other than to respond by saying that I am wrong and that you won't respond.
I promise that the second you give me a statement that says Shane is still employed at Pershing Square and that he has not been on hiatus I will put it up IMMEDIATELY. I'll even send it to every legitimate journalist I can. If he has not been on hiatus, I will GLADLY modify the post, to state this. Its pretty simple. Tell me he has not been on hiatus and I will immediately correct the post.
And again, if you are unwilling to respond directly to me, simply because I am unidentified, I am very happy to place you in direct contact with journalists that you can provide those statements to.

My Beliefs:

1. I believe Pershing amassed a short position in Herbalife of around 24.5M shares (at an average cost of ~$46/share)
2. I believe that Pershing partially covered that position in September by buying back 9.8M shares and converting that to 13.5M shares worth of OTC Jan 2015 puts (purchased at the equivalent of $10/contract)
3. I believe that Pershing conducted this partial covering exercise under the false flag on the factsaboutherbalife.com website that explicitly stated day after day that Pershing's short position did not contain any options at all.
4. I believe that Pershing Square is in possession of an authenticated translation of the Test-Aankoop appeal decision and that Pershing Square is willfully and purposefully excluding this information from their factsaboutherbalife.com website.
5. I believe that Pershing has coordinated their anti-herbalife efforts  with politicians at both the local and national levels. (one example in particular is Pershing hosting a letter from NYS Senator Espaillat approximately 20 minutes after it was created)
6. I believe that Pershing Square was in receipt of Representative Sanchez's letter to the FTC on June 5th, (and no later than June 6th) before the FTC was in receipt of it.
7. I believe that Bill Ackman himself was informing his fellow dinner attendees on June 6th about Rep. Sanchez's letter to the FTC, again before the FTC had this letter.
8. I believe that as a result of Pershing's Herbalife short and provided that the firm has not continued to restructure the positions that the firm has lost approximately $838M (realized and marked, as of today's close)
9. I believe that my above estimate aside that Pershing Square is currently unwinding their Herbalife short, or at least further restructuring by buying back the shares they have on loan.
10. I believe that Pershing Square may be purchasing more OTC Herbalife puts.
11. I believe that both Shane Dinneen and Mariusz Adamski (the two lead internal analysts on Pershing's Herbalife short position) are both no longer with the firm.
12. I believe that Pershing can legally claim that Dinneen in particular is still employed by Pershing and that he is still on payroll, but that in fact Mr. Dinneen is on and has been on a hiatus and is no longer contributing to the active management of Pershing's Herbalife short position.
13. I believe that Pershing square attempted to slow the PwC audit process by sending a multitude of letters to PwC in addition to the 52 page letter that was publicly disclosed
14. I believe that Pershing square has made claims that Herbalife's accounting practices are questionable while simultaneously ignoring the same accounting treatments in companies that Pershing is holding long.

Again, that pretty much sums up the core of my beliefs about Pershing and its Herbalife short position. As stated, I look forward to your response and will happily include it on my blog."

After waiting for more than ten days, without any response, I'm left scratching my head as to why in particular Pershing and Ackman were SO sensitive about this particular post. By no means do I believe that Ackman's special December 23rd letter is a direct response to me, but the pattern within the response remains par for the course. I noticed in that letter that Ackman specifically said 

"When combined with the false rumor that Pershing Square has quietly capitulated on its position, these developments have caused the stock to rally to new all-time highs."  

He noticeably uses the word capitulate. He could have further restructured the position and put Dinneen on hiatus without "capitulating". He says nowhere within his letter that Shane and Mariusz are still active at Pershing, or that he hasn't further covered/restructured the position. He really is a strange bird sometimes. In October he noted that his restructuring dropped a hefty thwack on Herbalife longs by making the squeeze mechanics less attractive, but now he's saying that the belief he was quitting the Herbalife short was a reason the stock rallied. Not sure which one he really believes, but I doubt he'll shoot me an email to explain.

I am surprised (not really) at their level of sensitivity with respect to semantics. I also take issue with Rubenstein's assertion that I have somehow harmed the reputation of Pershing Square; one only needs to read all of Ackman's letters, and watch all of his interviews regarding Herbalife to realize that Ackman has done far more than I ever could to harm the reputation of Pershing. It is also difficult for me to reconcile how Ackman and Pershing could contact little old me, the unidentified illegitimate blogger, and then conveniently refuse to respond to that same unidentified illegitimate blogger when I'm asking for a meaningful response. After ALL of the open accusations and questions for Herbalife Ackman has issued it seems like it would be a pretty straightforward process for Ackman to rip my fourteen point outline a new asshole, provided of course that those points are without merit.  Why not fire off a (gasp) single page letter that simply states why my fourteen points are wrong? It would also be easy enough to speak directly to a legitimate reporter at a legitimate news organization to address the points I raised to Pershing, but I suppose that would be too reasonable. If any of you legitimate reporters happens to hear back from Pershing, I'd love to hear from you. Perhaps it would be easier for everyone if Ackman would take his own advice and host a Richard Kinder-esque conference call to answer everyone's questions about Pershing's Herbalife short. I'm sure Michael Johnson would be happy to call in. I'd much rather be stuck on conference call than to still be stuck on the steep incline of Ackman's learning curve.

And to close out 2013 I'll leave you with a Henry Miller quote that I think speaks to the very heart of analysis, judgment and living a responsible, fulfilling life in general:

“No man is great enough or wise enough for any of us to surrender our destiny to. The only way in which anyone can lead us is to restore to us the belief in our own guidance.”

May 2014 be a fruitful year for you all in which you are led by the belief in your own guidance.

Happy hunting and thanks for reading.

-TS 

Manure! Part Deux-Deux

NOTE: THIS IS AN UPDATED VERSION OF A PREVIOUS POST ORIGINALLY POSTED TO THIS BLOG ON THURSDAY, DECEMBER 19th. I HAVE DONE MY BEST TO STRIKETHROUGH PREVIOUS COMPONENTS AND INCLUDED MODIFICATIONS FOLLOWING. ALSO NOTE THAT THERE ARE A FEW QUALIFIERS ADDED, SUCH AS I BELIEVE etc.

During a conversation with an esteemed colleague I discovered that it was his birthday. I immediately congratulated him on being another year older to which he replied, "Thanks, but I'm actually just another day older." So with all the fanfare that I'm sure will accompany the anniversary of Bill Ackman's Herbalife short position, I remember that it is just another day that his thesis is getting older and just like all of us, the sad truth behind each passing day is that it brings us another day closer to our demise. I wish that I could bestow a hearty "Happy Birthday" and clap on the back to Ackman's Herbalife short position, but instead of watching his little tyke grow older I feel like we're going back in time. 

In Back to the Future, we watch as our hero Marty goes from lowly dweeb and sleepy-headed slacker extraordinaire to saving the dignity of his town and his family by preventing the rape of his own mother in a parking lot. We even watch as his family disappears before his eyes in a family photo as he struggles to set right the world he unwittingly perturbed. 

In Ack to the Future II, we watch as our dear Billy goes from Hunk of Burning Cerulean Blue Billionaire Hero kickflipping through Hill Valley on his hoverboard to buried under a $821M $858M pile of manure. Before you know it, Michael Johnson will be chiding him for not putting a second coat of wax on the bimmer. His Sohn presentation was attempted parking lot rape if I ever saw one. And as far as his disappearing family is concerned, Billy has may have set about erasing his Herbalife short family on his own. 

Before we get to his family, lets run through that $821M $858M pile of manure. I'll break this into two sections:

1. the manure he's spitting out of his mouth (realized losses)
2. the manure currently covering the interior of his Ford Super De Luxe convertible (unrealized marks)

Let's start with the post-manure tooth check (strictly platonic of course). Billy has probably realized losses on 9.8M shares he covered, dividends he paid on those shares for three quarters, dividends he's paid on another 14.7M shares he's paid for 4 quarters (he is still short), the cost of his borrow (I'm using 2.5% compounded continuously) and legal costs all stuck up in his grill. 

Moving on to a quote for cleaning the manure out of Billy's Ford Super De Luxe (provided by Biff's Auto Detailing, naturally), as of today's close, Billy has probably marked 14.7M shares at $78 $80.61 and marked 13.5M shares worth of Jan 2015 50X puts at a ~31% ~30% markdown.

Unless he went about covering, (oops I mean restructuring), more of his Herbalife short Billy and Pershing Square investors are probably sitting on a $821M $858M loss in Herbalife.

If that weren't bad enough, unlike our hero Marty who did everything in his power to save his mediocre family, I believe Billy has gone about erasing those in his Pershing family that helped him set his Herbalife short in motion, by putting distance between Pershing and his core Herbalife team. For all the accolades that Bill gave Shane Dinneen last year at the Sohn conference, he hasn't said much about Shane's exhaustive efforts recently. For somebody that goes out of their way to name very junior hires in monthly and quarterly letters, I find it odd that Bill hasn't publicly disclosed he has fired Shane* mentioned the recent distance I believe exists between Shane and Pershing. 

*Note here that Pershing seemed to be acutely sensitive to the word "fired". Through a conversation I had with a rep from their PR agency Rubenstein, they were emphatic that Shane had NOT been fired. I informed their rep that I was very careful in my choice of words because "fired" is indeed a technical term which could mean that he is still on payroll, but not actively engaged in analyzing or managing the Herbalife position. I posited that I believed that he had been and will continue to be on some sort of break or hiatus and directly questioned their rep whether or not they would confirm or deny that he has been on some type of hiatus and not actively engaged in managing or analyzing the Herbalife position. I received no direct response to this question and the rep continued that Shane had not been fired. They strongly reaffirmed their request, that I refrain from using the word fired. I agreed to modify the language of my post to be very clear that I do NOT believe that Shane has been "fired" (at least not in the Donald Trump sense of the word), because I do believe he is still on payroll. I will also reaffirm that I believe Shane has somehow been decoupled from the Herbalife position for weeks now and may continue to be decoupled in the future. At the moment of this update, I have traded emails with their PR rep and am awaiting a response to my most recent email. If in fact they provide me with a response that states that Mr. Dinneen has not been and will not be on any type of hiatus and will actively be involved in managing Pershing's Herbalife position, I will immediately correct my post further.

To be accurate I guess "fired" may be a little "technical", but I believe Shane has NOT been in the Pershing Square Offices. Leave of absence, break, vacation, lacuna, interval, hiatus, time apart; whatever conversation Bill may have had with Shane, I'm sure he let Shane know "It's not you it's me." That being said I believe Shane Dinneen and Pershing Square are lovers no more. And really let's face it, it's not Shane**. 

**I am expanding this beyond what was contained in the previous post because I couldn't be more emphatic in my own opinion that Shane deserves respect. I'm not saying this because Pershing is asking me to (because they haven't), but because I want to: I'm sure that Shane spent a HUGE amount of time and effort digging into the guts of the Herbalife short thesis and regardless of what the longs or shorts may say, I have the utmost respect for Dinneen. Not many 2008 graduates show enough promise to be brought up on stage at a special Sohn conference to be publicly commended by the head of a $13B fund that is announcing a HUGE short position made possible by a promising young staff member. My post was not intended to mock Shane or to ridicule him in anyway, but meant to pick apart the nuances of Pershing's Herbalife trade. My belief was that Bill was the emphatic voice, passionately driving the desire to launch the Herbalife short and that Shane had done all the heavy lifting that allowed Bill to move forward with his desired trade. Make no mistake that it is not my belief that Shane walked up to Bill and said, "Hey, let's put on a $1B Herbalife short, based on my research." I believe it may have been the opposite in that Bill thought Herbalife was a short based on Indago's research and asked Shane to thoroughly vet Indago's work. I also think that Herbalife's move against Pershing is the cause of the distance between Pershing and Shane that I believe now exists. If Pershing would have made $1B this year on Herbalife I think Shane would be a PM by now. It's just how hedge funds work. I didn't invent the rules, but we all know what they are. Shane, I can't say more sincerely and emphatically that if I have caused you and your family any duress I apologize. Shane probably doesn't give a shit about my opinion at this point, but for what it's worth, I congratulate him on his immense effort and wish him nothing but the best in his future as I'm sure he'll do well.

Shane was a Junior staff member that probably worked his ass off on this short. I'm sure he put in 14 hour days and scrubbed through as much data as he could get his hands on. He happened to be wrong in his analysis but Ackman should have known better. Shane was not the one that amassed an extremely concentrated short and then announced it to world. Bill is the registered investment adviser, but Shane is expendable. Bill needed a neck for his albatross. But why would Bill hide the fact that he has "fired" there is distance between Pershing and Bill's lead analyst on his Herbalife short? Well that would mean he'd be publicly admitting defeat. And why would you be hiding that you're defeated? I can only assume that he's quietly winding down his Herbalife short. If word got out that he fired there was any sustained distance between Pershing and his star Herbalife analyst while sitting on a $821M $858M loss there wouldn't be much left to the imagination. Really, what kind of fiduciary amasses an 8% position (short), peacocks it publicly, then fires the allows distance between his fund and the one guy in the office that knows more detail and nuance than anyone else? I think everyone would agree that you don't fire your allow any distance between your position and your star analyst on one of your largest positions at the end of your year if you plan on maintaining that position until the "ends of the earth" as you've claimed. If you had any intention of sticking around Hill Valley for any meaningful amount of time, you may tuck your DeLorean behind a sign (you may need it in the future), but you sure as hell wouldn't scrap it.

And if Bill has any hope of getting back to the future, he better juice up the flux capacitor and step on the accelerator. Herbalife's debt deal is like the lightning that is going to strike the Hill Valley Courthouse's Clock Tower. We all know it's going to hit at 10:04 p.m., but will Billy be stuck in 1955 or will he make it safely back to 1985? Bill has done his best to delay the strike, but he too knows it's inevitable. He's put on a good show, ever keeping the steely visage of the oracle he wants us all to believe he is. He even went so far as to publicly release an 11 point, 52 page letter he sent to PwC. After that though he was quietly at work behind the scenes, sending letter after letter practically every single day to PwC in an effort to slow up the release of Herbalife's re-audited financials. Turns out his efforts paid off; all that extra scrutiny he levied on the company helped PwC be certain that their SAS 100 numbers were extremely accurate and that their review of Herbalife's business practices were thorough. Now that the re-audited financials are out there I wonder who Billy will correspond with? Maybe he'll write recommendation letters for Shane, or maybe he'll just troll Herbalife CFO John DeSimone and junk up his inbox with spam. 

DeSimone would be a fitting target of Ackman's rage considering that DeSimone danced around questions yesterday December 18th on an investor call (being certain that he didn't say anything that hadn't been publicly disclosed) about Herbalife's planned share repo. Judging by the tenor and measures of DeSimone's responses, Herbalife is currently working a deal with bankers for investment grade debt that they will use for a massive share repurchase; keep in mind, if Temasek doesn't take them private the repo will be massive enough to swallow a minimum of 25 million shares. And if anyone knows the value of this company, it is the CFO. No wonder why Carl Icahn and Bill Stiritz aren't selling.

So where does that leave Ackman? It's 10:03pm and he's sitting in the DeLorean waiting for the alarm to sound. He's gassed up with a $821M $858M loss, he kicked Dinneen to the curb Dinneen isn't riding shotgun, and his fund is in for $1B with Libyan terrorists. 

If Herbalife hits $88, Ackman may be OUTATIME.

Manure! I HATE manure!

This post has been updated: I direct you to the updated version *click here*. 

During a conversation with an esteemed colleague I discovered that it was his birthday. I immediately congratulated him on being another year older to which he replied, "Thanks, but I'm actually just another day older." So with all the fanfare that I'm sure will accompany the anniversary of Bill Ackman's Herbalife short position, I remember that it is just another day that his thesis is getting older and just like all of us, the sad truth behind each passing day is that it brings us another day closer to our demise. I wish that I could bestow a hearty "Happy Birthday" and clap on the back to Ackman's Herbalife short position, but instead of watching his little tyke grow older I feel like we're going back in time. 

In Back to the Future, we watch as our hero Marty goes from lowly dweeb and sleepy-headed slacker extraordinaire to saving the dignity of his town and his family by preventing the rape of his own mother in a parking lot. We even watch as his family disappears before his eyes in a family photo as he struggles to set right the world he unwittingly perturbed. 

In Ack to the Future II, we watch as our dear Billy goes from Hunk of Burning Cerulean Blue Billionaire Hero kickflipping through Hill Valley on his hoverboard to buried under a $821M pile of manure. Before you know it, Michael Johnson will be chiding him for not putting a second coat of wax on the bimmer. His Sohn presentation was attempted parking lot rape if I ever saw one. And as far as his disappearing family is concerned, Billy has set about erasing his Herbalife short family on his own. 

Before we get to his family, lets run through that $821M pile of manure. I'll break this into two sections:

1. the manure he's spitting out of his mouth (realized losses)
2. the manure currently covering the interior of his Ford Super De Luxe convertible (unrealized marks)

Let's start with the post-manure tooth check (strictly platonic of course). Billy has probably realized losses on 9.8M shares he covered, dividends he paid on those shares for three quarters, dividends he's paid on another 14.7M shares he's paid for 4 quarters (he is still short), the cost of his borrow (I'm using 2.5% compounded continuously) and legal costs all stuck up in his grill. 

Moving on to a quote for cleaning the manure out of Billy's Ford Super De Luxe (provided by Biff's Auto Detailing, naturally), as of yesterday's close, Billy has probably marked 14.7M shares at $78, and marked 13.5M shares worth of Jan 2015 50X puts at a ~31% markdown.

Unless he went about covering, (oops I mean restructuring), more of his Herbalife short Billy and Pershing Square investors are sitting on a $821M loss in Herbalife.

If that weren't bad enough, unlike our hero Marty who did everything in his power to save his mediocre family, Billy has gone about erasing those in his Pershing family that helped him set his Herbalife short in motion. For all the accolades that Bill gave Shane Dinneen last year at the Sohn conference, he hasn't said much about Shane's exhaustive efforts recently. For somebody that goes out of their way to name very junior hires in monthly and quarterly letters, I find it odd that Bill hasn't publicly disclosed he has fired Shane. To be accurate I guess "fired" may be a little "technical", but Shane is NOT in the Pershing Square Offices. Leave of absence, break, vacation, lacuna, interval, hiatus, time apart; whatever conversation Bill had with Shane, I'm sure he let Shane know "It's not you it's me." That being said Shane Dinneen and Pershing Square are lovers no more. And really let's face it, it's not Shane. Shane was a Junior staff member that probably worked his ass off on this short. I'm sure he put in 14 hour days and scrubbed through as much data as he could get his hands on. He happened to be wrong in his analysis but Ackman should have known better. Shane was not the one that amassed an extremely concentrated short and then announced it to world. Bill is the registered investment adviser, but Shane is expendable. Bill needed a neck for his albatross. But why would Bill hide the fact that he has "fired" his lead analyst on his Herbalife short? Well that would mean he'd be publicly admitting defeat. And why would you be hiding that you're defeated? I can only assume that he's quietly winding down his Herbalife short. If word got out that he fired his star Herbalife analyst while sitting on a $821M loss there wouldn't be much left to the imagination. Really, what kind of fiduciary amasses an 8% position (short), peacocks it publicly, then fires the one guy in the office that knows more detail and nuance than anyone else? I think everyone would agree that you don't fire your star analyst on one of your largest positions at the end of your year if you plan on maintaining that position until the "ends of the earth" as you've claimed. If you had any intention of sticking around Hill Valley for any meaningful amount of time, you may tuck your DeLorean behind a sign (you may need it in the future), but you sure as hell wouldn't scrap it.

And if Bill has any hope of getting back to the future, he better juice up the flux capacitor and step on the accelerator. Herbalife's debt deal is like the lightning that is going to strike the Hill Valley Courthouse's Clock Tower. We all know it's going to hit at 10:04 p.m., but will Billy be stuck in 1955 or will he make it safely back to 1985? Bill has done his best to delay the strike, but he too knows it's inevitable. He's put on a good show, ever keeping the steely visage of the oracle he wants us all to believe he is. He even went so far as to publicly release an 11 point, 52 page letter he sent to PwC. After that though he was quietly at work behind the scenes, sending letter after letter every single day to PwC in an effort to slow up the release of Herbalife's re-audited financials. Turns out his efforts paid off; all that extra scrutiny he levied on the company helped PwC be certain that their SAS 100 numbers were extremely accurate and that their review of Herbalife's business practices were thorough. Now that the re-audited financials are out there I wonder who Billy will correspond with? Maybe he'll write recommendation letters for Shane, or maybe he'll just troll Herbalife CFO John DeSimone and junk up his inbox with spam. 

DeSimone would be a fitting target of Ackman's rage considering that DeSimone danced around questions yesterday on an investor call (being certain that he didn't say anything that hadn't been publicly disclosed) about Herbalife's planned share repo. Judging by the tenor and measures of DeSimone's responses, Herbalife is currently working a deal with bankers for investment grade debt that they will use for a massive share repurchase; keep in mind, if Temasek doesn't take them private the repo will be massive enough to swallow a minimum of 25 million shares. And if anyone knows the value of this company, it is the CFO. No wonder why Carl Icahn and Bill Stiritz aren't selling.

So where does that leave Ackman? It's 10:03pm and he's sitting in the DeLorean waiting for the alarm to sound. He's gassed up with a $821M loss, he kicked Dinneen to the curb, and his fund is in for $1B with Libyan terrorists. 

If Herbalife hits $88, Ackman may be OUTATIME.

And So Shines a Good Deed on A Cruel Turd

On December 2nd, 2013, in Brussels, a panel of three judges in the 8th Chamber of the Belgian Court of Appeals was determining the fate of Herbalife's appeal (2012/AR/736) in the Test-Aankoop vs Herbalife case (AR 2004/7787). Sounds like the beginning of a Wu-Tang album. Test-Aankoop originally sued Herbalife in 2004 claiming that Herbalife violated Belgian Consumer protection laws (as described in the Belgian Commercial Practices Act, a.k.a the WMPC). Herbalife lost this case in 2011 when the court found that Herbalife had violated the WMPC because it had established, managed and promoted a pyramid scheme under which compensation was derived primarily from the introduction of other consumers or businesses, rather than from the sale or consumption of products. Herbalife was ordered to stop operating a pyramid and to pay €5,000 for each infraction that occurred after two months from the ruling(€250,000 max penalty). Herbalife maintained that the ruling was based on factual errors and that they believed an appeal would exonerate them of the pyramid accusations. They filed that appeal in March 2012.

Every dog has his day and Ackman used his to let his dogs run all over Herbalife's lawn. He cited the Test-Aankoop ruling in his work as primary evidence that Herbalife would be found to be a pyramid and would get shut down. As mentioned in an earlier post, he's still hosting the OLD Test-Aankoop ruling although on December 2nd, 2013, the Belgian Appeals court overturned the decision and found that Herbalife was not an illegal pyramid. There were numerous news reports on December 3rd that the ruling had been overturned, but nothing in the way of substantive evidence as to the full determination of the appeal. After reviewing an authenticated translation of the actual ruling I offered some choice interpretation in a previous post, but I did so without posting the ruling in full.

That brings me back to Ackman's dogs. You ever wonder why turds on the lawn turn white?

The answer is simple: SUNLIGHT.

*(click on the Sun to see the Belgian Court's ruling in favor of  Herbalife's appeal, also embedded below.)

When it's 23°F outside, the 8 1/2 minutes those photons took to hurl themselves from the sun to my skin feel like nothing more than an inconvenience. I'd wait a lot longer than 8 1/2 minutes in weather like this.

The tiny little bit of interpretation I'll provide here is that this ruling is effectively a point by point refutation of the Ackman thesis. Although it is unclear what affect this may have on US regulators, it is worth noting that the WPMC is a direct conversion of the codes set by the European Commission. The sunlight has taken 51 weeks to reach Ackman's lawn grenade. I'm sorry you had to wait.

The last paragraph of the ruling pretty much sums it all up:

"From all previous determinations and considerations, it follows that it has not been shown that the sales system employed by the appellant can be considered as a system whereby the consumer/an enterprise, by means of a payment, receives a chance to a compensation which mainly flows from the establishment of new consumers/new enterprises in the system, than from the sale or consumption of products.
In conclusion, no infringement is shown to article 91, 14°, nor to article 99 of the WMPC."

So, without further ado, presented both above and below, without editing** is the full translation of the Belgian Court of Appeals ruling.

**Please note that in full disclosure I have redacted a single page in it's entirety from the very beginning of the document (page 1). The redacted page is simply the notarized certification of the translation. I have done this solely to protect the identity of the translator as well as the notary public that notarized the document. If someone else wants to give you their names, fine, but it's not going to be me.

That disclaimer aside, feel free to verify the authenticity of my document. I almost didn't post this, but I have to admit, I kind of enjoy scooping the NY Post. Then again most of their documents come from the shadows. Walk around in the dark and you're practically guaranteed to step in something.

Herbalife Belgian Appellate Judgment

Test-Aankpoop

My Nederlands is a bit roestig, but nonetheless I have to wonder why Bill Ackman is still hosting the 2011 Test-Aankoop ruling on his website. Maybe Moelis’s main pitch on why investors should pull their money from Pershing is that he’s basing his investment decisions on outdated information. Maybe Moelis is simply referring to Ackman’s new 100:8:9:26 rule. I guess another possibility is that Shane Dinneen’s Texas accent doesn’t translate well into Dutch or after paying out the bonus pool this year, Pershing just can’t afford a translator?  Or MAYBE, just maybe, he already read it and realized just how damning it is to his thesis. I’d like to believe that he just couldn't afford to drop the ruling into Google translate, but I figure I’ll help him out a bit. In an offer as equally magnanimous as Ackman's offers to Herbalife, I thought it would be very kind of me to provide translation services zonder aanklacht. 

In Herbalife’s recently successful appeal heard in front of the 8^th Chamber of the Belgian Court of Appeals in Brussels, the panel considered multiple aspects of Article 91, 14° regarding market practices and consumer protection. I have to say that as wont as I am to dork out and dig in to some really inane details looking for patterns that others miss, this decision plays like a fugue in that the pattern becomes obvious once you recognize it. Thank goodness for me they make the pattern pretty obvious. In it's ruling the court introduces an element of the accusations against Herbalife, with all it's interwoven membranes, and then systematically demonstrates why those accusations are false. Subject, answer, countersubject, imitation. They do it time and time again.

In its ruling the court made extremely clear that under all circumstances the following commercial practices were verboden:

• establishing, managing or promoting a pyramid scheme in which a consumer or an enterprise, after payment, is likely to receive a compensation that is derived primarily from the introduction of new consumers in the scheme rather than from the sale or consumption of products.
• unfair business to consumer commercial practices
• establishing, managing or promoting a pyramid scheme in which a company, after payment, is likely to receive compensation derived from the introduction of new companies into the scheme rather than from the sale or consumption of products.

The Court goes on in its ruling to make it explicitly clear that “first and foremost that the distributor who wishes to obtain access to the system should not be required to pay any subscription or entry fee in order to obtain this.” The court recognizes that distributors must purchase IBP’s from Herbalife to gain entry, however the €107.15 cost of the IBP is reasonable for the four products contained in the IBP. Furthermore the court notes that because a distributor can return the IBP within 90 days and be refunded their money (even if opened) the price of an IBP cannot be considered a subscription/entry fee. Effectively the court pretty much rips the rotzak off Ackman and his thesis by stating that a consumer/distributor or company does not obtain entry into the sales system of Herbalife by virtue of a payment. 

The court also clearly stated that Herbalife distributors do not have the obligation to place a minimum number of orders within a certain period of time, nor do they have to maintain a minimum stock of products.

The court then goes on to expand upon Herbalife's refund policy by stating that prior to 2012, Herbalife deducted 10% from refunds for restocking fee, but noted that in and of itself that did not come close to building a pyramid. They actually referred to the Seldia European Code of Ethics (European Direct Sellers Association) which explicitly state that 90% of a direct sale purchase price must be repaid in a refund. So even though Herbalife dropped this 10% fee, they were never violating any guidelines when they were keeping 10%. The Belgian court also noted that Test-Aankoop couldn’t “submit a single complaint of a Belgian Herbalife client” who felt they had been ripped off by the refund policy (and we all know know how much Europeans love to complain). My mind immediately thinks about the hundreds of thousands of Americans that bought products (yet only a couple hundred filed complaints) and also I have to ask why the fuck Bostick didn't just return all that shit he ordered instead of giving it all away? 

In one of the most damning sentences within the ruling the court states that deducting “royalty overrides,” bonuses, commissions etc. off of returns and adjusting distributor qualifications should be considered a safety measure that prevents the downline from inventory loading. So, just like John Hempton has been saying all along, there aren't garages full of Herbalife products because inventory loading is discouraged, hence why there aren't inventory liquidations en masse.

My favorite passage is worthy of including verbatim:

"That there is an apparent large rotation of distributors does not necessarily imply that the system is unlawful. It can be caused by the fact that the involved party wanted to do this only for a limited time or to finance a certain important purchase, with the conclusion that after a certain period of time, that this kind of involvement isn't for him or due to the fact that he only wanted to buy the products for personal use and wanted to enjoy the 25% discount."

DAMN Ackman!!!! You just got bezeten son!

As much mierenneuken Bill Ackman has undertaken in an effort to convince the world that he is correct, he seems to have a knack for ignoring when the world is telling him that he is wrong. Ackman's Herbalife shpeel reminds me of Wim Delvoye's Cloaca; Delvoye reconstructed the human gastrointestinal tract in sculptural form and then put it on exhibit for all the world to see. As fun an exercise as the whole thing may be for Dhr. Rotzak-man, at the end of the day the return on the effort spent will still be nothing more than an aesthetically pleasing load of shit (at best), for which he will ultimately manage to get people to give him money for. 

My Crazy Mother

Social media often gets junked up with catfights and misinformation. Quite a few times in the past two days in stocks I closely follow I've watched as posters try to throw algos into a frenzy with gross fallacies. Aside from the potential illegality of such actions, especially if those parties traded on any reaction they may have gotten, those people forget that fact checking in today's technologically enabled world is one of the easiest tests we can perform. For instance, my crazy mother (if I had a dollar for every time I've said that I could tender for Herbalife myself) once claimed that she hadn't received a rather sharp-tongued email from me in which I was asking some very pointed questions, because her iPhone was broken. I smelled that all too familiar odor of bullshit, so I decided to investigate a little and saw that on that same day, about 3 hours after I emailed her, she used her "broken" phone to check in to a spa on Facebook. It was clear that she was sparing me from her opinion that she thought I was being a dick and didn't want to talk to me about what I was pointedly asking. Wouldn't be the first time I've gotten that response from people.

Form your opinion on facts (long or short) and stake your claim. You can be a cheerleader all you want, but outright lies and lack of fact checking are too easy to catch and simply inexcusable. Another good example is Icahn's sales restrictions in Herbalife. Just go to the SEC website and pull the terms yourself.

Sale Restriction.
In consideration of the Company’s agreement set forth herein, so long as the Company has complied and is complying with its obligations under the first and second paragraphs of Section 1(a), Sections 1 (b), 1(c) and 1(d), and Section 7, and has otherwise materially complied and is materially complying with its other obligations set forth in this Agreement, the Icahn Parties agree that from the date hereof until February 28, 2014, the Icahn Parties shall not, and shall cause their controlled Affiliates not to, directly or indirectly, voluntarily sell any common shares of the Company (or Beneficial Ownership thereof) or any securities convertible or exchangeable into or exercisable for any common shares of the Company (or Beneficial Ownership thereof) (including, without limitation, any derivative securities or instruments having the right to acquire common shares of the Company) unless such sale involves a sale, transfer, tender or other disposition involving a tender or exchange offer (whether commenced by a third party or the Company), or a merger or other business combination transaction that is not in violation of Section 2 of this Agreement. This Section 3 terminates and ceases to have any effect at such time as the VWAP for a share of the Company’s common stock on the New York Stock Exchange (defined as dollars traded for each transaction ( i.e., price multiplied by the number of shares traded) divided by total number of shares traded) for any five (5) consecutive trading day period is at least $73.00, as adjusted to account for any stock split or stock dividend.

By my calculations, Icahn's lockup provision expired around 10:51 a.m. on December 3rd when the VWAP hit $73.26. That is without adjusting for the quarterly dividends either. I'm just too lazy right now. DADCo's Tim Ramey reiterated this in a note his team published yesterday when he stated that Icahn's lockup actually expired yesterday Dec 4th:

 "A VWAP of $76.65 was achieved as of the close of trading yesterday."

As of yesterday's close the VWAP was $76.48(again without adjusting for the dividends). With Uncle Carl stating that he has no intention of selling his shares we can speculate what could change his mind but after reading that his lockup expired, I'm sure some will see that 750K block that traded yesterday at 3:32 and think that Uncle Carl took some off the table. Again, it isn't too hard to do some rudimentary research to see that the tape has this tied to an options trade (Jan 2015 puts anyone?). Plus, Icahn's shares are insider shares, so if the LBO/buyback deal is in the works, or he has information about the impending audit release, he wouldn't be able to sell because he is an insider. And even if he could sell why would he if a LBO/buyback was on it's way?

There are some important implications in all this. For Icahn to be able to sell when his lockup is null would require that nothing material is on the horizon. Aside from the fact we aren't seeing a 17M share iceberg break off into the market, we don't even have to speculate that he isn't selling because Icahn hasn't filed a Form 4. We know his lockup has been expired for days now and he isn't selling. There are two simple reasons why he would continue to hold them at these levels:

1. He thinks the shares are undervalued (insert preferred  reason of choice for the discount). You can disagree with him, but this is a simple explanation.
2. Regardless of share value, information is on the way that would prevent him from selling because he is an insider. 

What does that mean? In the absence of insider sales I have to conclude that as has been often discussed, the audit re-issue and a meaningful share purchase are coming. DeSimone very clearly stated that the audit would be here by the end of year leaving us at most just over three weeks to wait.

These are all such easy facts to check I don't even want to waste any sarcasm in this post and I'll save it for the next email to my mother.