The Unnamed Activist in Herbalife’s 10-Q

It’s been nearly a year since activist investor Bill Ackman predicted that Herbalife Ltd. would be trading at zero. Instead, the stock has doubled since the beginning of 2013. But Ackman shows few signs of giving in. As Reuters reported yesterday, during a speech at Oxford’s Said Business School, Ackman remains convinced that “the business will be shut down”. The website that Pershing Square created last year — Facts about Herbalife — even has a several updated links along the right-hand side about potential legal actions.

We thought about this as we dove into the 10-Q that Herbalife filed on Monday afternoon. Ackman’s prints were all over that filing, though he was never named directly. We tweeted a few of the more interesting tidbits on Monday, including the fact that the company has spent nearly $24 million over the past nine months in legal and professional fees to respond to some of Ackman’s claims. Presumably, this includes whatever Herbalife is paying Google for the ad that appears when one searches for Herbalife and Ackman on Google. On the plus side, the quarterly number has been falling since the beginning of the year: in the first quarter it was $9.4 million. It dropped to $8.1 million last quarter and was $6.3 million this quarter, which assuming a hefty $1,500 an hour in legal fees, still buys an awful lot of lawyering.

But even more interesting was the way in which the company tweaked one of its risk factors. While the company has included a risk factor about speculative trading since the 10-K it filed in February, its most recent Q had somewhat different language. Here’s the new sentence that caught our eye: “This hedge fund manager continues to make allegations regarding the legality of our network marketing program, our product safety, our accounting practices and other matters.”

Three guesses as to who they’re talking about!