Herbalife Ltd (HLF): Will Political Donations Save Bill Ackman and the Shorts?

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Bill Ackman has launched nothing short of a crusade against Herbalife Ltd (NYSE: HLF) because he and his Pershing Capital have had a massive short position against the stock. Moreover, Bill has made it no secret (e.g. see a detailed blog post on the Opensecrets Blog entitled: Herbalife Battle Weapons Include Lobbyists, Campaign Dollars) that he intends to enlist government support in order to make his short position profitable. But who will ultimately win the battle of political influence, cronyism and campaign contributions – Herbalife and its bakers or Bill Ackman and the shorts?

Its time to go off Wall Street and onto K-Street to follow the campaign contributions and lobbyist money to see where the government sledgehammer might fall.

Follow the Campaign Contributions or Lobbyist Cash

I won't revisit the epic battle between Herbalife investor Carl Icahn and Bill Ackman who is shorting the stock but it appears the latter's crusade has finally paid off because Senator Edward J. Markey of Massachusetts has sent letters to the Federal Trade Commission and the Securities and Exchange Commission urging them to investigate the company. And in an apparently unrelated move, there is also word that California Atty. Gen. Kamala D. Harris' staff has agreed to meet Friday in Los Angeles with a coalition of critics who believe that Herbalife preys on "poverty-stricken immigrants with false hopes of easy money."

But first, just who is Edward J. Markey? From 1976 to 2013, he served as the U.S. Representative for Massachusetts's 5th congressional district before winning a special election to fill John Kerry's seat following his nomination as United States Secretary of State. In other words, he's a career politician who knows how the game is played in the corridors of the Capitol and the back alleys of K-Street.

With that in mind, a quick look at Opensecrets.org for Bill Ackman's political contributions reveals the following:

ContributorOccupationDateAmountRecipient

ACKMAN, WILLIAM A NEW YORK,NY 10106	PERSHING SQUARE CAPITAL MANAGEMENT	4/30/2013	$32,400	Democratic Senatorial Campaign Cmte
ACKMAN, WILLIAM A MR NEW YORK,NY 10024	PERSHING SQUARE CAPITAL	11/6/2012	$20,000	National Republican Congressional Cmte
ACKMAN, WILLIAM A MR NEW YORK,NY 10024	PERSHING SQUARE CAPITAL	11/6/2012	$20,000	National Republican Senatorial Cmte
ACKMAN, KAREN NEW YORK,NY 10024	LANDSCAPE ARCHITECT	10/16/2013	$10,000	New Jersey Democratic State Cmte
ACKMAN, WILLIAM A NEW YORK,NY 10024	PERSHING SQUARE CAPITAL MANAGEMENT	10/16/2013	$10,000	New Jersey Democratic State Cmte
ACKMAN, KAREN NEW YORK,NY 10024	LANDSCAPE ARCHITECT	7/22/2013	$5,200	Booker, Cory
ACKMAN, KAREN NEW YORK,NY 10024	LANDSCAPE ARCHITECT	7/22/2013	$5,200	Booker, Cory
ACKMAN, WILLIAM A NEW YORK,NY 10024	PERSHING SQUARE CAPITAL MANAGEMENT	7/22/2013	$5,200	Booker, Cory
ACKMAN, WILLIAM A NEW YORK,NY 10024	PERSHING SQUARE CAPITAL MANAGEMENT	7/22/2013	$4,767	Booker, Cory
ACKMAN, KAREN NEW YORK,NY 10024	LANDSCAPE ARCHITECT	7/22/2013	$2,600	Booker, Cory
ACKMAN, KAREN NEW YORK,NY 10024	LANDSCAPE ARCHITECT	7/22/2013	$2,600	Booker, Cory
ACKMAN, WILLIAM A NEW YORK,NY 10024	PERSHING SQUARE CAPITAL MANAGEMENT, LP	9/30/2013	$2,600	Eldridge, Sean
ACKMAN, WILLIAM A NEW YORK,NY 10024	PERSHING SQUARE CAPITAL MANAGEMENT, LP	9/30/2013	$2,600	Eldridge, Sean
ACKMAN, WILLIAM A NEW YORK,NY 10024	PERSHING SQUARE CAPITAL MANAGEMENT	7/22/2013	$2,600	Booker, Cory
ACKMAN, WILLIAM A NEW YORK,NY 10024	PERSHING SQUARE CAPITAL MANAGEMENT	7/22/2013	$2,167	Booker, Cory
ACKMAN, JEANNE B WESTON,MA 02493	MASSACHUSETTS GENERAL PHYSICIANS ORGAN	4/10/2013	$500	Markey, Ed
ACKMAN, WILLIAM A NEW YORK,NY 10024	PERSHING SQUARE CAPITAL MANAGEMENT	8/28/2013	$433	Booker, Cory
ACKMANN, BARBARA BUNCOMBE,IL 62912	FARMER	4/1/2013	$300	Shimkus, John M
ACKMAN, WILLIAM A NEW YORK,NY 10024	PERSHING SQUARE CAPITAL MANAGEMENT	7/22/2013	$-2,167	Booker, Cory
ACKMAN, KAREN NEW YORK,NY 10024	LANDSCAPE ARCHITECT	7/22/2013	$-2,600	Booker, Cory
ACKMAN, KAREN NEW YORK,NY 10024	LANDSCAPE ARCHITECT	7/22/2013	$-2,600	Booker, Cory
ACKMAN, WILLIAM A NEW YORK,NY 10024	PERSHING SQUARE CAPITAL MANAGEMENT	7/22/2013	$-2,600	Booker, Cory

 

Note: Jeanne Ackman is apparently Bill's sister according to the New York Times while Bill's $32,400 to the Democratic Senatorial Campaign Committee on April 30 occurred on the same day Ed won the Democratic primary. Just over a month later, the Democratic senatorial committee gave $45,400 to the Markey's campaign.

More data on 2013-2014 political contributions to Edward J. Markey can be found here on Opensecrets.org, but note the following top 20 industries where his campaign cash is coming from:

Top 20 Industries contributing to Campaign Cmte MemberRank  DistrictRank  Industry  Total  Indivs  PACs  

1	3	Lawyers/Law Firms	$741,875	$651,375	$90,500
2	1	Securities & Investment	$297,000	$276,000	$21,000
3	22	TV/Movies/Music	$290,400	$205,800	$84,600
4	17	Leadership PACs	$251,200	$0	$251,200
5	4	Real Estate	$248,150	$229,650	$18,500
6	36	Environment	$218,289	$193,340	$24,949
7	2	Retired	$192,004	$192,004	$0
8	37	Lobbyists	$165,300	$163,000	$2,300
9	8	Business Services	$151,850	$150,850	$1,000
10	11	Pharmaceuticals/Health Products	$114,050	$57,150	$56,900
11	9	Education	$105,950	$105,950	$0
12	10	Computers/Internet	$99,100	$71,100	$28,000
13	14	Non-Profit Institutions	$97,000	$97,000	$0
14	6	Public Sector Unions	$86,250	$750	$85,500
15	30	Telecom Services & Equipment	$80,500	$29,000	$51,500
16	19	Printing & Publishing	$78,750	$70,750	$8,000
17	12	Misc Finance	$76,975	$74,375	$2,600
18	23	Misc Business	$72,450	$71,450	$1,000
19	20	Health Professionals	$71,400	$39,400	$32,000
20	13	Democratic/Liberal	$69,328	$61,705	$7,623

 

Of course, it should come as no surprise that the biggest source of campaign money for a Democrat congressman comes from trial lawyers or law firms, and it should be remembered that Herbalife will be a target of such firms should any allegation stick – meaning it might be interesting to examine any data about how much money Markey has received from so-called "shareholder rights" law firms.

Moreover, Herbalife is not exactly defenseless either because the company has increased its spending on lobbyists in recent years according to Opensecrets.org data:

For last year, Herbalife International spent $1,340,000 on lobbying efforts:

Firms HiredTotal Reported by FilerReported Contract Expenses (included in Total Reported by Filer)

Herbalife International	$950,000	-
Herbalife International of America	-	$950,000
Downey McGrath Group	-	$190,000
Ogilvy Government Relations	-	$80,000
Podesta Group	-	$80,000
Glover Park Group	-	$20,000
Intl Business-Government Counsellors	-	$20,000
		$1,340,000

  In fact and according to Opensecrets.org, Herbalife hired five lobbying firms last year (up from two in 2012) in addition to its in-house lobbying arm to defend itself in the political arena. They have also hired hired former Los Angeles Mayor Antonio Villaraigosa, the first Latino mayor of Los Angeles since 1872, as a senior advisor to CEO Michael O. Johnson to try and head off trouble with critical Hispanic lawmakers like Rep. Linda Sanchez (D-CA) along with Hispanic groups while Rep. Xavier Becerra (D-CA), who represents the Los Angeles district where HLF is headquartered, has "cautioned his caucus colleagues not to rush to any conclusions about the dietary supplement maker until all the facts have come in" (Note: Opensecrets.org says that Herbalife's PAC has made contributions of $1,000 to Becerra in both the 2010 and 2014 election cycles). 

 

Herbalife or its employees have also been active in state politics – including California politics as according to Followthemoney.org data:

 

TABLE 1: Total HERBALIFE INTERNATIONAL Contributions from 2003 to 2012 Contribution SourceIncluded in Total?Total

HERBALIFE INTERNATIONAL	always	$350,000
Employees of HERBALIFE INTERNATIONAL	no	$28,051	Include
	Grand Total	$350,000

TABLE 3: Contributions by State from 2003 to 2012 StateRecords↓Total↓

California	30	$329,000
New Mexico	1	$20,000
Virginia	1	$1,000

TABLE 4: Contributions to Candidates from 2003 to 2012 CandidateStateYearsRecords↓Total↓

SCHWARZENEGGER, ARNOLD	CA	2008	1	$75,000
KOMADINA, STEVE	NM	2008	1	$20,000
BROWN, JERRY	CA	2008	2	$13,000
WHITMAN, MEG	CA	2010	1	$13,000
HORTON, JEROME E	CA	2004-2006	4	$7,000
HAYASHI, MARY	CA	2008-2010	2	$3,000
DYMALLY, MERVYN M	CA	2006-2008	2	$2,000
GALGIANI, CATHLEEN	CA	2006-2010	2	$2,000
HERNANDEZ, ED	CA	2006-2010	2	$2,000
PEREZ, JOHN A	CA	2010	1	$2,000
CALDERON, RONALD S	CA	2006-2010	2	$1,500
FUENTES, FELIPE	CA	2010	1	$1,500
BASS, KAREN	CA	2008	1	$1,000
COOLEY, STEVE	CA	2010	1	$1,000
DE LEON, KEVIN	CA	2010	1	$1,000
HALL, ISADORE	CA	2010	1	$1,000
MCDONNELL, ROBERT F (BOB)	VA	2009	1	$1,000
PADILLA, ALEX	CA	2006	1	$1,000
PRICE, CURREN D	CA	2006	1	$1,000
STRICKLAND, AUDRA	CA	2008	1	$500
STRICKLAND, TONY	CA	2010	1	$500

Note that someone forgot to give California Attorney General Kamala D. Harris a donation, but her opponent, Los Angeles County District Attorney Steve Cooley, did receive a $1,000 contribution from the company as a big chunk of his campaign cash came from the LA area where HLF is headquartered. Finally, a look at where Harris's campaign cash came from on Followthemoney.org reveals the usual assortment of Democratic friendly trial lawyers and public sector unions as being her biggest source of money: TABLE 3: Top 15 All Time Industries IndustryTotal

Lawyers & Lobbyists	$1,320,033
General Trade Unions	$478,118
TV & Movie Production/Distribution	$333,102
Public Sector Unions	$320,775
Party Committees	$288,644
Real Estate	$185,230
Computer Equipment & Services	$156,661
Securities & Investment	$141,695
Health Professionals	$114,926
Miscellaneous Finance	$108,034
Tribal Governments	$92,000
Civil Servants/Public Officials	$71,671
Printing & Publishing	$66,570
Candidate Committees	$59,605
Telecom Services & Equipment	$45,335

The Bottom Line. I have to admit that I have been thinking of buying Herbalife and I know some money managers who have also been (cautiously) putting clients into the stock; but given how much money is being thrown around by the company and its defenders along with Bill Ackman and the shorts or HLF critics, I'd give the stock a past because its hard to see right now where the government sledgehammer will fall as everyone jockeys for political influence. Moreover, there is a risk that Herbalife and its defenders (e.g. employees and distributors) could end up fighting a battle on too many fronts should 49 other attorney generals, the 500+ other members of Congress, 50 state governors or countless other legislators across the country decide to stick their noses into the company's business – especially those politicians who are friendly with trial lawyers. Remember, all Bill Ackman and the shorts have to do is "convince" a couple of politicians like Edward J. Markey or Kamala D. Harris to take them up on their position and continue to make life miserable for the company and its shareholders.