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Whitney Tilson: 76% Chance Herbalife Will Fail

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The battle of giants continues.

Bill Ackman’s 3.5 hour presentation on Herbalife’s (NYSE: HLF) supposedly fraudulent practices failed to impress Wall Street Tuesday: the stock flew up 25 percent. Shortly after, Bob Chapman disclosed that a bullish Herbalife position is the biggest bet of his life and boldly slapped a $150 one-year price target on the stock.

Whitney Tilson is jumping into the mix with a piece titled, “Why I’m More Confident of My Herbalife Short Position Today.”

Before Ackman’s presentation, Tilson was 90 percent sure the company was a pyramid scheme, but only 70 percent sure that regulators would act. That gave him a 63 percent chance of success.

Related Link: Bob Chapman: Herbalife Will hit $150 By Summer 2015

After Ackman’s presentation, Tilson is 95 percent certain Herbalife is a pyramid scheme and 80 percent sure that regulators will step in. This brings his calculated chance of success to 76 percent.

Tilson applauded the Pershing Square presentation for uncovering valuable information on the company’s nutrition clubs: “In short, Ackman presented voluminous evidence that Herbalife is aggressively selling millions of people a promise of the American Dream but is instead giving them the American Nightmare – bleeding them dry and discarding them. This is the very definition of fraud.”

The note concluded by pointing out that Ackman refuted the primary bull argument - that sellers would be peddling their goods at lower prices on eBay and elsewhere to shed unwanted inventory. Tilson explained, “But now we know why: the majority of the product is actually being consumed – but not by real consumers, but rather millions of people (and their unfortunate friends and family) caught up in a vast scam that’s like a cult, with vast promises, huge rallies, etc.”

Shares of Herbalife are down 2.1 percent to $66.33 in Wednesday’s pre-market session.

Posted-In: News Hedge Funds Hot General

 

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