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Pivotal Analyst On Herbalife–Vemma Comparison: Ackman 'Grasping At Straws'

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Pivotal Analyst On Herbalife–Vemma Comparison: Ackman 'Grasping At Straws'
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  • Shares of Herbalife Ltd. (NYSE: HLF) traded higher on Tuesday despite a letter from Pershing Square comparing the company to Vemma Nutrition.
  • Vemma Nutrition was shut down by the FTC for operating a pyramid scheme late last month.
  • Pivotal Research's Tim Ramey told Benzinga that Ackman is "grasping at straws" and the hedge fund is in "damage control."

Shares of Herbalife were trading higher by more than 1 percent mid-Tuesday despite a letter from Bill Ackman's Pershing Square comparing the firm to Vemma Nutrition, a multi-level marketing company that was recently shut down by the FTC.

Tim Ramey of Pivotal Research spoke to Benzinga following Pershing Square's letter and initially pointed out that Vemma and Herbalife "couldn't be more different." Simply enough, the analyst pointed out that if the two companies were similar and operating a pyramid scheme, why hasn't the FTC moved against Herbalife by now, especially when considering Herbalife's operation is substantially larger and affects more people than Vemma?

Obvious Pyramid Scheme

Ramey said Vemma is an "obvious pyramid scheme" and one of the true telling signs was its use of a "lightning bonus" in which members receive an automatic financial incentive for fulfilling certain recruiting criteria in a predefined time period, at a cost of $600 per new member. On the other hand, Herbalife's initial cost to join is only $60 and non-commission-able. Moreover, the analyst added that Herbalife places limits on new members in terms of how much they can initially order along with a subsequent "cooling down" period.

Pershing At 'The End Of The Rope'

Commenting on Pershing Square's letter, Ramey noted that the hedge fund "doesn't have anything" and they are "at the end of the rope." He added it is "abundantly clear" at this point that Herbalife doesn't satisfy the conditions required to be classified as a pyramid scheme, especially when factoring in it has been several years since Pershing Square's initial thesis has been made public.

"It's a ridiculous comparison," Ramey said. "It's absolutely nonsense."

In a note to clients on August 27 (immediately following the FTC's action against Vemma), Ramey maintained an Outperform rating on Herbalife's stock with a price target raised to $100 from a previous $90 as the FTC's move marks a "successful resolution of the FTC cloud overhanging Herbalife."

"If Herbalife was Vemma, it would have been closed with injunctive relief 18 months ago, not served with the CID [civil investigative demands] process," Ramey commented in his research note in August. "With Herbalife shares up over five percent this morning, it is apparent that the market 'gets it'."

Latest Ratings for HLF

DateFirmActionFromTo
Apr 2016BarclaysTerminatesOverweightOverweight
Aug 2015Pivotal ResearchMaintainsBuy
May 2015Canaccord GenuityMaintainsBuy

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Posted-In: Herbalife Pyramid Scheme Pershing Square Pivotal Research Tim RameyAnalyst Color Top Stories Exclusives Analyst Ratings Best of Benzinga

 

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