if you want to click on all the links.
By Lauren
Coleman-Lochner and Rachel Butt - Jan 16, 2014
Nu Skin Enterprises Inc. (NUS)
plunged the most ever after the Chinese government said it would investigate
the maker of skin-care and nutritional products following a Chinese newspaper’s
report that Nu Skin was a “suspected illegal pyramid scheme.” Shares of other
direct sellers such as Herbalife Ltd. and Usana Health Sciences Inc. also
dropped.
Nu Skin
fell 30 percent to $81.24 at 2:37 p.m. in New York and earlier
declined as much as 41 percent for the largest intraday decrease since its 1996
initial public offering.
The State
Administration for Industry and Commerce said it will probe Nu Skin’s
operations after the People’s Daily report. China is treating the allegations
seriously and has asked for an immediate investigation, the department said in
a statement
on its website. Nu Skin representatives yesterday denied the allegations in the
newspaper report.
“We have
initiated our own province-by-province business review and will invite relevant
regulators to provide guidance,” Nu Skin said today in an e-mailed statement.
“There will likely be a negative impact on China revenue, but it is too early
to know whether our previous guidance will be affected.”
Nu Skin
also said it will add procedures to reinforce training and education.
Herbalife,
a Cayman Islands-based seller of nutrition products, fell 12 percent to $69.74.
Salt Lake City-based Usana, which sells personal-care and weight-management
products, dropped 13 percent to $57.05.
New
Obstacles
Foreign
firms have been contending with new obstacles in China in recent months.
Last year, the government-controlled media accused Starbucks Corp. (SBUX) of
charging too much and said Samsung Electronics Co.’s smartphones don’t work
properly. International Business Machines Corp.’s China revenue fell after
state-owned companies delayed orders of servers and mainframes. Qualcomm Inc.
technology is largely absent from devices on China Mobile Ltd.’s network
because the state-owned carrier deployed a related system it said was developed
locally.
Multilevel
marketers, which use salesmen to recruit other sellers in addition to hawking
products, also have come under renewed scrutiny in the U.S. after hedge fund
manager Bill Ackman
in 2012 accused Herbalife of being a pyramid scheme and placed a bet against
the company’s shares. Herbalife has denied Ackman’s allegations, and investors
including billionaire Carl Icahn
have rushed to its defense.
China
Allegations
Yesterday,
the People’s Daily said Nu Skin brainwashes its trainees and sells 104 products
in China, 20 more than the government allows. Nu Skin said the article
“contains inaccuracies and exaggerations that are not representative of our
business in China.”
In 2012,
20 percent of the company’s sales
came from China and Hong Kong.
As of July, Nu Skin had licenses to operate its direct-selling network in 19 of
the country’s 32 provinces and municipalities.
Scott Van
Winkle, an analyst at Canaccord Genuity Inc., today cut his recommendation on
the stock to hold from buy, saying the Chinese market is large enough to
significantly affect Nu Skin’s results and valuation.
Network
marketers such as Nu Skin “have always been questioned,” causing “outsized
share price movements,” Olivia Tong, an analyst at Bank of America Corp., wrote
in a note yesterday. “There does not seem to be tangible evidence to validate
negative claims targeted at the company thus far.”
Tong,
based in New York, recommends
buying the shares, citing strong cash flow.
To
contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net
To
contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net
No comments:
Post a Comment