Fallstreet

Description

Isolated pyramid-like practices does not a full-fledged pyramid scheme make. The next problem for Ackman is that, as noted, the company generates a lot of cash. Mr. Ackman notes that Herbalife is selling essentially the same product it did years ago, does not spend much on R&D, doesnâ??t have an advertising budget, and has only a single patent. For a value hawk this is what makes Herbalife so attractive! That Herbalife does not need to constantly reinvent itself is precisely why it generates cash! Finally, Mr. Icahn will be â??rightâ?? because if the stock goes low enough this could compel him to make a tender offer for Herbalife. If the company goes private the stock price doesnâ??t go to zero. Under this scenario Mr. Ackman is â??wrongâ??, even if Ichan or someone else is unable to keep the company thriving in the years ahead. In short, Herbalife is a train wreck waiting to happen because there is no financial cushion in the companyâ??s balance sheet to absorb a couple of bad quarters, much less a bad year. Herbalife is also a cash cow that throws of a decent dividend.

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