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The Morning Brief: Ackman’s “Death Blow” Not So Deadly
Is that all you got? That’s apparently what investors are saying after shares of Herbalife surged 25.45 percent following William Ackman’s promised presentation that was supposed to remove all doubt that the nutrition supplements company is just one big fraud. During his morning live-streamed lecture, Ackman, the founder of New York–based hedge fund firm Pershing Square Capital Management, reiterated his case that Herbalife is a Ponzi scheme and disclosed his findings from an investigation into more than 240 Herbalife clubs.
Ackman continued to assert that the company is targeting desperate Latinos and other lower-income groups that want to be entrepreneurs, USA Today reports. “Herbalife has phantom or fictitious customers,” Ackman reportedly said, stressing that many of the workers are uneducated trainees who work for no pay in the hope of getting a job as a club distributor. “It’s a tragedy. They don’t realize they’re being defrauded,” he said.
Christine Richard, a former Bloomberg reporter who now counts Ackman as a client of her research firm, stated during the presentation: “What they’re selling is smoke and mirrors,” she said, adding that Herbalife is turning “fake club traffic” into customers.
In response Herbalife fired off a press release rebutting many of Ackman’s points. “Once again, Bill Ackman has over-promised and under-delivered on his $1 billion bet against our company,” the company states. “After spending $50 million, two years and tens of thousands of man-hours, Bill Ackman further demonstrated today that the facts are on our side.”
Herbalife asserts that Ackman’s negative bet is running out of time, noting that the equivalent of 25.7 million shares in put options expire on January 17, 2015. In rebutting Ackman’s points, Herbalife noted: “We are proud that our members are required to participate in training before deciding to open a nutrition club. Our training approach — sometimes referred to as a ‘university’ — is similar to the training model that has been deployed by numerous consumer-facing companies.”
Speaking of Ackman, UBS raised its rating on Allergan to Buy from Neutral and lifted its price target to $200 from $180. “Management confirmed its plan to get an accretive deal done,” the bank tells clients in a note Tuesday, adding that the company’s cost cutting announcement “was solid and viewed positively.” Allergan, a major holding of Ackman’s Pershing Square Capital Management, is trying to fend off a hostile takeover from Valeant Pharmaceuticals.
UBS also raised its price target on a hedge fund favorite, Chipotle Mexican Grill, to $600 from $530 after the casual fast food chain reported very strong results Monday evening. However, the bank maintained its Neutral rating on the stock, which closed at $659.77, up nearly 12 percent.
Shares of Ingersoll-Rand surged 4.28 percent after the maker of Trane air-conditioners and Thermo King refrigeration units beat quarterly estimates and raised its forecasts for the year. The stock is a major holding of Nelson Peltz’s New York–based hedge fund firm Trian Partners, the second largest shareholder, and Daniel Och’s New York–based Och Ziff Capital Management.
Stifel Nicolaus raised its target price on another hedge fund favorite, Netflix, to $500 from $475 after it reported better-than-expected results and what the bank calls “upbeat” third quarter commentary. The bank tells clients the streaming video giant not only increased estimates for 2015, it highlighted two key themes that have “underpinned” its Buy rating. Domestic margins are accelerating faster than the company had earlier indicated and the international business is poised to break even in the third quarter.
Bruce Berkowitz’s The Fairholme Partnership posted a 1.06 percent gain in the second quarter and is now up 9.76 percent for the year. The event-driven, fundamental value strategy fund had $258 million in assets as of July 1.
The SS&C GlobeOp Forward Redemption Indicator measured 3.15 percent for June, down from 4.80 percent the prior month. This was in line with historical averages, points out Bill Stone, chairman and CEO of SS&C Technologies in a press release. The Indicator represents the sum of forward redemption notices received from investors in hedge funds administered by SS&C GlobeOp on the GlobeOp platform, divided by the assets under administration at the beginning of the month for SS&C clients, the company explains.