Tuesday, December 20, 2016

Reducing Herbalife shares for tax purposes

Pershing Square sold $51.7 million worth of the troubled Canadian pharmaceutical company’s stock recently, according to regulatory filings. The sale reduced Pershing’s Valeant stake to 7.8 percent from 9 percent. The purpose of the sale was to “generate a tax loss in 2016” for investors, according to the filing. Investors can use losses to offset other gains in their investment portfolios.

"HLF stock has traded down more than 33% since the announcement of the company’s settlement with the FTC on July 15th, 2016, a 15% year-to-date decline, as investors have come to increasingly ignore the company’s fraudulent characterization of the FTC settlement. At its December 2, 2016, price of $47.99 per share, HLF currently trades at approximately the price at which we shorted the shares in 2012."

"Fundamentally, pyramid schemes are confidence games. The CEO exit, deteriorating earnings, the declining stock price, and the John Oliver segment should materially impact Herbalife distributor confidence. When distributors reduce their purchases and/or leave the company, the financial results of the company should decline on an accelerated basis. Furthermore, we believe the injunctive relief demanded by the FTC is likely to significantly impact Herbalife’s financial performance beginning in the second quarter of 2017. Coupled with decelerating growth in many international markets, especially in China, we expect earnings to decline in 2017. We remain short Herbalife because we believe its intrinsic value is zero."