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Hedge fund takes 8.2% stake in Herbalife

By buying 8.9 million shares in the company, Daniel Loeb's Third Point bets against hedge fund manager Bill Ackman, who had called Herbalife a pyramid scheme.

January 10, 2013|Bloomberg News
  • Herbalife is fighting allegations by hedge fund manager Bill Ackman that it uses inflated pricing, misleading sales information and a complicated incentive structure to hide a pyramid scheme. Above, Herbalife's offices in Los Angeles.
Herbalife is fighting allegations by hedge fund manager Bill Ackman that… (Irfan Khan / Los Angeles…)

Hedge fund Third Point took an 8.2% stake in Herbalife Ltd., becoming the latest firm to bet against hedge fund manager Bill Ackman, who has accused the direct seller of nutritional products of being a pyramid scheme.

Third Point, which had about $10 billion under management and is run by financier Daniel Loeb, has purchased 8.9 million Herbalife shares, according to a filing with the Securities and Exchange Commission.

Herbalife is fighting allegations made by Ackman, the founder of Pershing Square Capital Management, that it uses inflated pricing, misleading sales information and a complicated incentive structure to hide a pyramid scheme. Herbalife is preparing to lay out its rebuttal at an investor conference in New York on Thursday.

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Additionally, Herbalife might be facing an investigation by the Securities and Exchange Commission, according to the Wall Street Journal. The inquiry, run out the SEC's New York office, will likely look into the company's sales practices.

Loeb's investment "sounds incredibly wise to us," Tim Ramey, an analyst with D.A. Davidson & Co., said while traveling in New York, where he plans to attend the Herbalife meeting. "The Ackman case doesn't have any merit. It attempts to prove the company's a pyramid scheme when the prima facie evidence is that it's not."

Ramey recommends buying the stock.

Herbalife closed up $1.60, or 4.2%, at $39.95 after earlier surging as much as 9.3%.

Barb Henderson, an Herbalife spokeswoman, declined to comment on the Third Point investment. Loeb didn't immediately respond to an email seeking details.

Ackman, who has sold short about 20 million Herbalife shares, said in a statement Wednesday that his goal was "to shine a spotlight on the company so that the world better understands the facts about Herbalife."

"The outcome of this investment is not about Pershing Square or anyone else who is long or short the stock," Ackman, Pershing Square's chief executive, said in the emailed statement. "To the extent another investor, long or short, brings additional sunlight to the situation, we welcome them."

Short selling refers to the practice of borrowing shares and selling them, with the goal of profiting by repurchasing them later at a lower price.

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