Betting on Zero

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,

They sought and found a new leader.

Michael o. Johnson.

Johnson had risen through the ranks at the disney corporation

To become president of disney international.

Announcer: The eyes of the world are on herbalife.

We will be faster, better, stronger than ever before.

Narrator: A competitive triathlete,

Johnson's passion for fitness perfectly mirrored his new company's image.

At herbalife, he had a midas touch.

Revenues grew at astonishing rates.

From $1.3 billion to $4.8 billion in his first 10 years.

Oh, we're just getting started.

We're just scratching the surface of what can be.

We haven't penetrated the markets and communities

Anywhere close to what we're gonna see.

Narrator: Johnson did well by herbalife and himself.

In 2011, he was the highest paid ceo in america.

His compensation package totaled $89.4 million.

Mexican sales, up 31%. Asia pacific, up 29%.

India, 121%! South, central america, 44%.

This company seems to be unstoppable.

You know, my mother and father were incredibly strong influences in my life.

And integrity was the name of the game in our house.

Um, you know, if you did something wrong, own up to it.

Just never tell that lie, you know,

Because you're gonna lose the trust.

And I think what we've done here is

We've built an integrity and a trust in our organization,

In our people, in our product.

And if I'm the one out in front, leading that, okay.

You know, I'll take that responsibility.

Scott wapner: John desimone is sitting here with me.

John, it's good to see you.

John desimone: Thank you, scott.

Wapner: At this very moment, bill ackman and more than 500 people

Are inside a theater in midtown manhattan.

Bill's getting ready to give his latest presentation,

And they're watching this interview live.

In his words, he's gonna expose incredible fraud at herbalife today.

What do you expect?

Uh, we know this mo. This is not the first time.

As a matter of fact, this has been 18 months of always... The guy here...

It's always "the bark is worse than the bite."

Uh, he's made some outrageous statements.

He's made 435 accusations over the last 18 months,

Each one is the latest and greatest until it's proven not to be.

First of all, what are you accusing herbalife of?

Of being a pyramid scheme.

We believe herbalife is a pyramid scheme.