{
  "docId": "019dd923-622c-750b-8b9b-70cbe9d85cc7",
  "docSlug": "8f35c45bc493",
  "documentTitle": "Herbalife, Ltd. (HLF)",
  "authorId": "01_Pershing_Square",
  "authorName": "Pershing Square Capital Management",
  "documentKindSlug": "research-note",
  "documentKindLabel": "Research note",
  "sourceTypeSlug": "activist_investor",
  "sourceTypeLabel": "Activist investor",
  "presentationDate": "2013-04-09 00:00:00",
  "orientation": "portrait",
  "aspectRatio": 0.77272725,
  "pageNumber": 7,
  "pageCount": 14,
  "prevPage": 6,
  "nextPage": 8,
  "slideType": "villain_critique",
  "function": "name_villain",
  "density": "overcrowded",
  "nDataPoints": 4,
  "notes": "This is a text-heavy research note slide from a Pershing Square presentation on Herbalife.",
  "elementsJson": [
    "paragraph",
    "footnote"
  ],
  "metadataConfidence": 1,
  "imagePath": null,
  "slideHref": "/slides/019dd923-622c-750b-8b9b-70cbe9d85cc7/7",
  "deckHref": "/decks/019dd923-622c-750b-8b9b-70cbe9d85cc7",
  "deckJsonHref": "/decks/019dd923-622c-750b-8b9b-70cbe9d85cc7.json",
  "deckAnchorHref": "/decks/019dd923-622c-750b-8b9b-70cbe9d85cc7#slide-7",
  "components": [
    {
      "bbox": null,
      "kind": "callout",
      "text": "We believe ~92% of participants’ income is from recruiting.",
      "attrs": null,
      "subkind": null,
      "toolName": "Visual emphasis",
      "toolSlug": "visual-emphasis",
      "confidence": null,
      "componentId": "019dd953-70f9-71ae-a67c-415d026bfdb1",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": null,
      "kind": "metric",
      "text": "distributor income from recruiting: 92%",
      "attrs": null,
      "subkind": "primary",
      "toolName": "Quantification",
      "toolSlug": "quantification",
      "confidence": null,
      "componentId": "019dd953-70f9-71ae-a67c-4a7f564fc9e7",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.177,
        "w": 0.764,
        "x": 0.118,
        "y": 0.486
      },
      "kind": "paragraph",
      "text": "Rewards for Recruiting Constitute Nearly All of HLF Distributor Profits. A distributor’s only real chance to earn the ‘lifestyle’ money promised in Herbalife marketing materials is from recruiting. Using the assumptions detailed in our presentation, we estimate that Herbalife participants obtain approximately 10 times more from recruiting rewards, or “rewards unrelated to the sale of products to ultimate users,” than they do from selling the product to retail customers. After adjusting HLF’s reported data to fully account for realistic retail-related profits and all recruiting-related rewards, we believe ~92% of participants’ income is from recruiting. (See slide 150: http://factsaboutherbalife.com/wp-content/uploads/2013/01/Who-wants-to-be-a-Millionaire.pdf#page=150). This is why we believe Herbalife is far past the line of being a legitimate multi-level marketing company (“MLM”) and is a pyramid scheme.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "100e6849-fc7b-4a66-9d6c-b3cb8abd3f65",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.068,
        "w": 0.764,
        "x": 0.118,
        "y": 0.245
      },
      "kind": "paragraph",
      "text": "Just as senior distributors encourage junior distributors to recruit, Herbalife’s highly complicated compensation plan incentivizes distributors to recruit aggressively. Distributors cannot get to the upper levels of the Herbalife ranks without recruiting. Only the upper levels of Herbalife’s ranks earn more than $6,000 per year of gross earnings before expenses.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "1fe99830-8948-4f8a-aed3-cfefc7fa0b6e",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.136,
        "w": 0.764,
        "x": 0.118,
        "y": 0.331
      },
      "kind": "paragraph",
      "text": "True Retail Profits are De Minimis. We believe a distributor’s ability to profit from true retail sales of Herbalife products is de minimis. The “suggested retail price” of Herbalife products is an artificial, inflated number with no relation to the price at which Herbalife’s products are actually sold to bona fide retail customers. Herbalife products are widely available online, from independent distributor websites and on eBay, at approximately 35-40% discounts to their “Suggested Retail Price.” Taking into account the actual price at which Herbalife products are resold to the public, we estimate that the average Herbalife distributor earns less than $10 per month selling product to true retail customers.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "376a53d7-02ae-4f80-83f5-d2ac408de50e",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.015,
        "w": 0.29,
        "x": 0.592,
        "y": 0.063
      },
      "kind": "paragraph",
      "text": "Pershing Square Capital Management, L.P.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "42761eeb-f785-41a2-b178-13a73f5ca2b9",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.041,
        "w": 0.764,
        "x": 0.118,
        "y": 0.177
      },
      "kind": "paragraph",
      "text": "With just a few years of work, an Herbalife distributor supposedly obtains ever-increasing income for life. (See slide 55: http://factsaboutherbalife.com/wp-content/uploads/2013/01/Who-wants-to-be-a-Millionaire.pdf#page=55)",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "8d9ef5ce-3e21-4742-9a6a-6c933898a525",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.068,
        "w": 0.764,
        "x": 0.118,
        "y": 0.739
      },
      "kind": "paragraph",
      "text": "Definitionally, an MLM is a pyramid scheme if its compensation plan incentivizes participants to focus on recruiting at the expense of retailing. Over the years, however, the FTC has described numerous indicators of pyramid schemes, supported by the case law, in publicly released statements, commentary, and consumer alerts. Below, we will focus on nine such indicators and show why, in each case, they support our conclusion that Herbalife is a pyramid scheme.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "a2ff8d22-55e1-407a-9f45-5f01280ab0bb",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.055,
        "w": 0.764,
        "x": 0.118,
        "y": 0.109
      },
      "kind": "paragraph",
      "text": "straight 9 to 12 months. Because you know what, in that short space of time, by making that commitment, you are going to create a foundation for life. Absolutely. Not just for yourself, but a legacy, a legacy for your family, for your children, and their children’s children.6",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "dd3c5b9e-bad4-4c1c-855f-2214d488ea94",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": null,
      "kind": "quote",
      "text": "straight 9 to 12 months. Because you know what, in that short space of time, by making that commitment, you are going to create a foundation for life. Absolutely. Not just for yourself, but a legacy, a legacy for your family, for your children, and their children’s children. — Herbalife independent distributor audiovisual presentation (11-28-11). Online Business Systems is an Herbalife affiliate overseen by Shawn Dahl (Chairman’s Club).",
      "attrs": null,
      "subkind": null,
      "toolName": "Authority citation",
      "toolSlug": "authority-citation",
      "confidence": null,
      "componentId": "019dd953-70f9-71ae-a67c-45cbd65c31dc",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.027,
        "w": 0.764,
        "x": 0.118,
        "y": 0.881
      },
      "kind": "source-note",
      "text": "6 Source: Herbalife independent distributor audiovisual presentation (11-28-11). Online Business Systems is an Herbalife affiliate overseen by Shawn Dahl (Chairman’s Club).",
      "attrs": null,
      "subkind": null,
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "7afca1c5-d3d2-46fd-941f-ea6d2e7b724e",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.022,
        "w": 0.764,
        "x": 0.118,
        "y": 0.703
      },
      "kind": "title",
      "text": "Herbalife Displays Indicators of Being a Pyramid Scheme",
      "attrs": null,
      "subkind": "headline",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "d6c47f00-9390-46ce-a2e0-b29bef879a09",
      "frameworkName": null,
      "frameworkSlug": null
    }
  ],
  "metrics": [],
  "tools": [],
  "frameworks": [],
  "arcBeats": [
    {
      "to": 7,
      "from": 4,
      "beatId": "5310a823-e086-4034-8bc1-62559b886f7a",
      "arcName": "Problem-Agitate-Solution",
      "arcSlug": "problem-agitate-solution",
      "beatName": "Expose Contradiction",
      "beatSlug": null,
      "evidence": "The document highlights contradictions in Herbalife's business model, including recruiting rewards outweighing retail profit",
      "position": 1,
      "confidence": 0.8,
      "parentBeatName": null,
      "parentBeatSlug": null
    },
    {
      "to": 10,
      "from": 5,
      "beatId": "cab10150-5d4a-4279-a793-186ba32d7364",
      "arcName": "Problem-Agitate-Solution",
      "arcSlug": "problem-agitate-solution",
      "beatName": "Preempt Rebuttal",
      "beatSlug": null,
      "evidence": "The document preempts rebuttals by addressing potential counterarguments, such as lawsuits and targeting vulnerable groups",
      "position": 2,
      "confidence": 0.8,
      "parentBeatName": null,
      "parentBeatSlug": null
    }
  ],
  "loops": [],
  "imagePathAlt": null,
  "thumbSrc": null,
  "thumbSrcAlt": null,
  "locked": true
}