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Herbalife shares surge past price when Ackman made allegations

May 06, 2013|By Stuart Pfeifer
  • Herbalife shares were up more than 5% in early trading Monday.
Herbalife shares were up more than 5% in early trading Monday. (Mark Boster / Los Angeles…)

Herbalife Ltd. shares were up more than 5% Monday and had passed the price they  were when hedge fund manager Bill Ackman accused the Los Angeles nutritional products company of operating a long-running pyramid scheme.

The company’s stock price plummeted Dec. 19 after Ackman publicly disclosed that he had taken a $1-billion short against its shares. Within four trading days of Ackman’s announcement, the stock fell 43%, reaching $24.24 on Christmas Eve.

The downswing created a buying opportunity for billionaire investor Carl Icahn, who now owns nearly 16% of the company’s shares. The company also allowed him to add two members to its board of directors.

Herbalife’s stock has gained more than 20% in less than three weeks. The company recently announced record earnings for the first quarter and raised its guidance for the year.

Shares were trading above $43 on Monday. Ackman has not disclosed the price at which he shorted its shares, but it is believed to have been between $45 and $50.

Ackman’s argument is that most Herbalife independent sales people lose money while a fortunate few who got into the business years ago get rich, collecting commissions from the sales of those they recruited into the business.

The company said its multilevel marketing plan, used by many other companies, is perfectly legal. Most of its distributors do not intend to make a living selling its shake mixes, vitamins and protein bars, the company said. Instead, they sign up as distributors to receive discounts on products they personally consume.

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