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Herbalife shares reach one-year high on buyback speculation

Shares of the nutritional products maker rise 3.8% to $73.29, putting hedge fund manager Bill Ackman deeper in the hole on his $1-billion bet that the stock will go to zero.

September 17, 2013|By Stuart Pfeifer
  • Nutritional products maker Herbalife has fended off the allegations of operating a pyramid scheme, as Carl Icahn, George Soros and several other high-profile investors bought large stakes in the company.
Nutritional products maker Herbalife has fended off the allegations of… (Mark Boster / Los Angeles…)

Shares of nutritional products maker Herbalife Ltd. hit a 52-week high Tuesday, putting billionaire hedge fund manager Bill Ackman deeper in the hole on his $1-billion bet that the stock will go to zero.

Herbalife shares reached a one-year intra-day high of $73.91 and a closing high of $73.29 on speculation that the company may start aggressively repurchasing its shares.

The Los Angeles company was one of the more volatile stocks on Wall Street after Ackman accused the company last December of operating a pyramid scheme and said he took a $1-billion short position in the stock, meaning he would profit from a price drop.

In recent months, though, the stock has been rising steadily.

Ackman is estimated to have shorted 20 million shares of Herbalife stock at an average price of $50. Based on those numbers, his short position is down about $465 million on paper.

The company has fended off the allegations of operating a pyramid scheme, as Carl Icahn, George Soros and several other high-profile investors bought large stakes in the company.

D.A. Davidson & Co. analyst Timothy Ramey recently suggested that Herbalife will launch a $2-billion share repurchase. Asked what influence the buyback could have on Herbalife shares, Ramey said: "We have a $92 price target."

Tuesday's close marked a gain of $2.65, or 3.8%, in Herbalife's stock. The shares are up more than 120% this year.

Herbalife declined to say whether it will soon begin repurchasing its stock.

"We don't comment on rumors in the marketplace," Herbalife spokeswoman Barbara Henderson said.

Ramey said in a research note that he expects accounting firm PricewaterhouseCoopers to complete its auditing of Herbalife's past financial statements this month.

Herbalife hired the firm this year after its prior auditor, KPMG, resigned when a senior auditor admitted to engaging in insider trading in the stocks of Herbalife and other companies.

Once PricewaterhouseCoopers signs off on the past financials, Ramey said, Herbalife is likely to issue investment-grade debt and use the proceeds to finance a "massive repurchase."

He said he also expects that the company will receive $500 million to $1 billion from KPMG to resolve its liability in the insider-trading scandal.

Herbalife's stock has gained even as several Latino rights organizations have called on the Federal Trade Commission to investigate the company.

The groups allege that Herbalife preys on Latinos by suggesting that they can achieve vast wealth selling its products, even though more than 80% of the company's distributors make little or no money.

stuart.pfeifer@latimes.com

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