Timothy Ramey, an analyst at D.A. Davidson & Co., said that Herbalife Ltd. has a legal corporate structure, rejecting hedge-fund manager Bill Ackman’s theory that the direct-selling company operates as a pyramid scheme.
“It’s a company that has enjoyed a lot of growth and I think has attracted some scrutiny,” said Ramey today in a television interview on “Bloomberg Surveillance” with Tom Keene. “The question is, ’is their structure legal?’ We think it is.”
The Cayman Islands-based company is a classic network-marketing and direct-selling company, no different than Avon or Amway, Ramey said.
“If Herbalife is illegal, they are kind of all illegal,” Ramey said. There are “15.6 million people practicing this in the U.S. -- one out of every seven households,” he said. “This is a very populist concept.”
Ramey’s comments come after Daniel Loeb’s Third Point LLC said yesterday that it bought an 8.2 percent stake in Herbalife. Herbalife shares declined 2.3 percent to $39.02, after rising 4.2 percent yesterday.
Pershing Square Capital Management LP founder Ackman and Greenlight Capital Re Ltd. co-founder David Einhorn have questioned the legality of Herbalife’s business.
Herbalife’s Chief Executive Officer Michael Johnson denied Ackman’s claim that the company is a pyramid scheme during an investor meeting in New York today.